Top 50 NISM Series 21A PMS Distributors Practice Questions with Answers

Aspiring to become a certified PMS (Portfolio Management Services) distributor? The NISM Series 21A exam is your gateway, and practising with real‑world questions is the fastest way to boost your score. Below you’ll find 50 carefully curated practice questions, complete with detailed answers, plus tips, syllabus highlights, and a quick FAQ to clear any lingering doubts.

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What does the NISM Series 21A exam test?

Section	Topics Covered	Number of Questions	Marks	Approx. Weightage
Regulatory Framework	SEBI regulations, PMS guidelines, KYC norms	10	10	20%
Product Knowledge	Types of PMS, fee structures, risk profiling	12	12	24%
Distribution Process	On‑boarding, client suitability, documentation	10	10	20%
Ethics & Conduct	Conflicts of interest, code of conduct, disclosures	8	8	16%
Financial Markets Basics	Equity, debt, derivatives, market participants	10	10	20%
Total	—	50	50	100%

The exam is a 50‑question multiple‑choice test, 1 mark per correct answer, no negative marking. Duration: 60 minutes.

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How to use these practice questions effectively

1. Timed attempt – Replicate exam conditions; set a 60‑minute timer.
2. Analyze every answer – Even if you get it right, read the explanation to reinforce concepts.
3. Create an error log – Note down every mistake, the reason, and the correct rule; review it weekly.
4. Mix up topics – Shuffle questions from different sections to improve recall under pressure.
5. Revise the syllabus table – After each study session, glance at the syllabus weightage to ensure balanced coverage.

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Top 50 Practice Questions (with detailed answers)

1‑10: Regulatory Framework

1. Which SEBI circular introduced the “PMS Distributors” category?
   Answer: SEBI (Portfolio Management Services) Regulations, 1996 (as amended in 2013).

2. The minimum net worth requirement for a PMS distributor is:
   Answer: INR 5 crore (as per SEBI circular dated 30‑Oct‑2022).

3. Under SEBI regulations, a PMS distributor must file a “Monthly Transaction Report” with:
   Answer: The PMS manager, who then forwards it to SEBI.

4. KYC for PMS clients must be refreshed at least every:
   Answer: 5 years, unless there is a material change in client profile.

5. A PMS distributor is prohibited from dealing in securities of a client if:
   Answer: The distributor holds a material interest in the same securities (conflict of interest).

6. Which of the following is NOT a mandatory disclosure in the PMS brochure?
   a) Fee structure
   b) Historical returns of the manager
   c) Minimum investment amount
   d) Portfolio turnover ratio
   Answer: b) Historical returns of the manager (only past performance of the strategy, not the manager’s personal returns).

7. The “Fit and Proper” criteria for PMS distributors include all EXCEPT:
   a) Integrity
   b) Financial solvency
   c) Academic qualifications
   d) Experience in securities market
   Answer: c) Academic qualifications (while helpful, not a statutory criterion).

8. If a client’s risk profile changes, the PMS distributor must:
   Answer: Re‑assess suitability and obtain a fresh risk‑profiling questionnaire before continuing.

9. SEBI’s “Code of Conduct for Distributors” was last revised on:
   Answer: 15‑June‑2021.

10. A PMS distributor can charge a performance fee only if:
    Answer: The fee structure is disclosed in the agreement and the client provides explicit consent.

11‑20: Product Knowledge

11. Which PMS structure allows investors to retain direct ownership of securities?
    Answer: Discretionary PMS (as opposed to “wrap‑around” where securities are held in the manager’s name).

12. The typical fee components in a PMS agreement are:

    • Management fee (percentage of AUM)
    • Performance fee (percentage of excess returns)
    • Custodian fee (if any)
      Answer: All three may apply, but the custodian fee is usually charged by the custodian, not the distributor.

13. A “Hybrid” PMS strategy combines:
    Answer: Equity and debt instruments to achieve a balanced risk‑return profile.

14. Under SEBI, the maximum leverage allowed for a PMS portfolio is:
    Answer: 2× (i.e., total exposure cannot exceed twice the net asset value).

15. If a PMS manager wishes to change the investment style, they must:
    Answer: Notify the client and obtain written consent before implementing the change.

16. The “Lock‑in period” in a PMS agreement usually refers to:
    Answer: Minimum tenure during which the client cannot withdraw funds without penalty.

17. Which of the following is a tax‑efficient way for a PMS to generate income?
    a) Short‑term capital gains
    b) Dividend distribution tax
    c) Long‑term capital gains on equity > 1 year
    d) Interest on cash balances
    Answer: c) Long‑term capital gains on equity held > 1 year (lower tax rate).

18. A “Fund‑of‑PMS” structure is:
    Answer: A mutual fund that invests in multiple PMS portfolios, offering diversification.

19. Risk profiling questionnaire should be updated at least:
    Answer: Annually or when there is a material change in the client’s financial situation.

20. In a “Non‑Discretionary” PMS, the distributor’s role is limited to:
    Answer: Executing trades on behalf of the client after receiving explicit instructions.

21‑30: Distribution Process

21. The first step in onboarding a new PMS client is:
    Answer: Conducting KYC and obtaining the client’s PAN and address proof.

22. Which document confirms the client’s suitability for a particular PMS strategy?
    Answer: Suitability Report (signed by both client and distributor).

23. The “Know Your Customer (KYC) – Instant” portal is used for:
    Answer: Real‑time verification of client identity using Aadhaar/VID.

24. A PMS distributor must maintain records of client communication for at least:
    Answer: 5 years.

25. If a client wants to switch from one PMS strategy to another, the distributor must:
    Answer: Obtain a fresh suitability assessment and a signed transfer request.

26. The “Disclosure of Conflict of Interest” must be provided to the client:
    Answer: Prior to signing the PMS agreement.

27. Which of the following is a red flag indicating possible money‑laundering?
    a) Large, unexplained cash deposits
    b) Regular SIPs of INR 5,000
    c) Use of a PAN linked to a salaried individual
    d) All of the above
    Answer: a) Large, unexplained cash deposits.

28. Periodic portfolio review statements should be shared with the client at least:
    Answer: Quarterly.

29. The “Investor Protection Fund” (IPF) is applicable to PMS distributors in case of:
    Answer: Default of the PMS manager, not the distributor.

30. When a client files a complaint, the distributor must resolve it within:
    Answer: 15 business days, as per SEBI’s Investor Grievance Redressal framework.

31‑40: Ethics & Conduct

31. Accepting a gift worth INR 5,000 from a PMS manager is:
    Answer: Permissible, provided it is disclosed and does not influence professional judgment.

32. The “Best Execution” principle requires the distributor to:
    Answer: Obtain the most favorable terms for the client, considering price, speed, and likelihood of execution.

33. If a distributor discovers a material error in a client’s portfolio, they must:
    Answer: Immediately inform the client and rectify the mistake, documenting the action.

34. Front‑running is defined as:
    Answer: Placing an order for the distributor’s own account before executing a client’s order to benefit from the price movement.

35. Which of the following is an example of “mis-selling”?
    a) Recommending a high‑risk PMS to a conservative client
    b) Suggesting a PMS with higher fees than necessary
    c) Both a and b
    d) None of the above
    Answer: c) Both a and b.

36. The “Code of Conduct” mandates that a distributor must:
    Answer: Act honestly, with integrity, and in the best interest of the client at all times.

37. When a distributor has a personal investment in the same securities as a client, they must:
    Answer: Disclose the position and obtain client consent or abstain from the transaction.

38. Confidentiality of client information extends to:
    Answer: All personal, financial, and portfolio data, even after the client‑relationship ends.

39. If a client’s account shows suspicious activity, the distributor is required to:
    Answer: File a Suspicious Transaction Report (STR) with the FIU‑India within 10 days.

40. The “Cooling‑off period” after a client signs a PMS agreement is:
    Answer: 14 days, during which the client can terminate the agreement without penalty.

41‑50: Financial Markets Basics

41. A “beta” of 1.2 indicates that the PMS portfolio is:
    Answer: 20% more volatile than the benchmark index.

42. Which instrument is most commonly used for hedging equity exposure in a PMS?
    Answer: Index futures.

43. The “Liquidity Premium” refers to:
    Answer: Extra return demanded by investors for holding less‑liquid assets.

44. If the current market price of a stock is INR 150 and the 52‑week high is INR 180, the stock’s “price‑to‑high” ratio is:
    Answer: 0.83 (150/180).

45. In the context of debt securities, “Yield to Maturity (YTM)” represents:
    Answer: The total expected return if the bond is held until it matures, assuming all coupons are reinvested.

46. Which of the following market participants can act as a “Custodian” for PMS portfolios?
    a) Stockbrokers
    b) Banks
    c) Mutual funds
    d) All of the above
    Answer: b) Banks (and other SEBI‑registered custodians).

47. The “Efficient Market Hypothesis (EMH)” suggests that:
    Answer: All publicly available information is already reflected in security prices, making consistent outperformance unlikely.

48. A “Stop‑Loss” order is used to:
    Answer: Limit downside risk by automatically selling a security when its price falls to a predetermined level.

49. If a PMS portfolio’s turnover ratio is 80%, it means:
    Answer: 80% of the portfolio’s holdings were bought or sold during the reporting period.

50. The “Sharpe Ratio” is calculated as:
    Answer: (Portfolio return – Risk‑free rate) ÷ Standard deviation of portfolio returns.

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Practical Tips to Ace NISM Series 21A

• Master the syllabus first – Use the table above to allocate study time proportionally.
• Create flashcards for SEBI circular numbers – Quick recall of amendment dates often appears in the exam.
• Practice with a timer – Improves speed; aim for ≤ 1 minute per question.
• Use the “Explain‑to‑a‑friend” technique – If you can teach a concept, you truly understand it.
• Track your weak areas – After each mock, note topics where you scored < 60% and revise them intensively.

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Frequently Asked Questions

What is the passing score for NISM Series 21A?
The exam follows a 50‑question format; a minimum of 35 correct answers (70%) is required to pass.

Can I appear for the NISM Series 21A exam without completing the PMS distributor training?
Yes, the exam is open to anyone, but SEBI mandates that only certified distributors can provide PMS services.

How many times can I attempt the NISM Series 21A exam?
There is no limit on the number of attempts, but each attempt requires a fresh registration and fee payment.

Do I need to carry any documents to the exam centre?
You must bring a valid photo ID (PAN card, Aadhaar, or passport) and the printed confirmation email from NISM.

Is there negative marking in the NISM Series 21A exam?
No, there is no penalty for wrong answers, so attempt every question.

Where can I find the latest SEBI circulars related to PMS?
Visit the SEBI website → “Regulations & Circulars” → “Portfolio Management Services” section.

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