Posts in category: Investment Adviser Level 1

A key requirement of an adviser’s code of ethics, according to the SEC, is compliance with federal securities laws.

When recommending a financial product, advisers should consider the client’s circumstances and needs, ensuring that the recommendation is based on thorough investigation and suitability for the client’s circumstances.

The NPS Trust is responsible for handling grievances related to the National Pension System (NPS)

Complaints related to unlisted companies, listed companies, or trading members fall under the purview of other regulatory bodies and are not dealt with by SEBI.

Ethical dilemmas can be resolved through a deeper analysis of the situation, which can lead to a clear course of action.

Investment advisers provide advice on financial matters and have a responsibility to ensure ethical conduct in their dealings with clients.

A compliance audit for investment advisers is required to be conducted by a Practising Chartered Accountant on a yearly basis.

The foundation of fiduciary responsibility for investment advisers is acting in the best interest of their clients. They must prioritize the clients’ interests and ensure their well-being when making any decisions.

One of the requirements for advisers registered with the SEC is that their code of ethics should set forth a minimum standard of conduct for all supervised persons.

SEBI examines the complaint to confirm that it falls within its purview and then forwards the complaint to the concerned entity. The entity is required to respond with an Action Taken Report (ATR) within 30 days.

The Banking Ombudsman is appointed by the RBI to address complaints related to banking services.

Trust is important as it allows the adviser to gain the required information to provide the best advice to the client.

The purpose of the grievance redressal system for investment advisers mandated by SEBI is to provide a mechanism for clients to lodge their grievances with SEBI through the SCORES system if they are not satisfied with the response of the intermediary.

Advisers registered with the SEC should adopt and implement written policies to identify conflicts and other compliance factors creating risk and then address these risks.

Churning refers to the practice of frequent switching from one product to another to increase earnings from commissions.

Ethical conduct in business helps to earn the respect of society and maintain a good reputation.

Ethical principles go beyond what is legally required and encompass what is morally right.

If the complaint is not resolved within 2 weeks, the complainant can approach the Insurance Ombudsman for further assistance and resolution.

The Investor Services Centre (IS of the stock exchange can address grievances related to trading members or listed companies, among others.

If the policyholder is not satisfied, they can seek relief from the Insurance Ombudsman for further resolution.

The Investor Grievance Resolution Panel (IGRP) provides an opportunity for both parties to present their case and attempts to broker a settlement in case the complaint is not resolved to the investor’s satisfaction.

An investment adviser has an obligation to make full and accurate disclosure of all relevant facts to the client. Omitting or withholding information may mislead the client, and conflicts of interest should also be disclosed to maintain trust and faith.

The financial intermediary should focus on understanding and fulfilling the needs of the client, rather than being driven by personal interests or sales targets.

The basis for providing advice as an investment adviser should be an objective evaluation of client-specific conditions. The advice should be tailored to the individual client’s requirements and not influenced by factors that benefit the adviser.

The SEC requires registered advisers to disclose information about their financial condition that would impair their ability to meet contractual commitments to clients.

One of the wrong practices mentioned is frequent switching from one product to another to increase earnings from commissions, also known as churning. This practice should be avoided by investment advisors.

The fundamental ethical principles include honesty, fairness, and respect for others. Profitability is a business objective, not an ethical principle.

When initiating the judicial process for grievance resolution, the time limit provided in the law of limitation needs to be considered.

SCORES is the online mechanism set up by SEBI that deals with complaints related to all products and entities regulated by SEBI, including complaints against companies, investment companies, intermediaries, and service providers.

All of the mentioned problems are common in the advisory business.

The ‘best interest standard’ in Australia ensures that advisers act in the client’s best interests and consider their relevant circumstances when providing advice.

The role of a Practising Chartered Accountant in conducting the compliance audit is to ensure compliance with regulatory requirements and identify any material audit observations.

An investment adviser should prioritize the client’s financial well-being over personal earnings.

A financial intermediary helps the issuer in mobilizing resources for development/implementation of projects or investment in the capital market.

Educating investors about risks is important to build trust and ensure transparency in client-adviser relationships.

One of the main problems in the advisory business is the advisor’s lack of understanding of the financial products they are selling, including the risks involved and suitability for the client. This issue can be addressed by explaining the product features to the client and ensuring their understanding before making an investment.

The SAT is guided by the principles of natural justice in its procedures, as stated in Section 15U of the SEBI Act.

An appeal should be filed within 45 days from the date of receiving the order made by SEBI, the adjudicating officer, IRDAI, or PFRDA.

Violating the conditions of competence, honesty, integrity, and fairness in Australia can result in penalties such as bans and disqualification from acting as an adviser.

SCORES does not address incomplete or non-specific complaints, allegations without supporting documents, or complaints seeking guidance or explanations.

Before making investments, it is crucial to consider the risk-return profile, liquidity, and safety aspects. Investments should align with the investor’s risk appetite and investment goals rather than being influenced by promises of high or assured returns, incentives, or market rumors.

The SAT has the same powers as a civil court under the code of civil procedure while trying a suit, as mentioned in the SEBI Act.

The role of the Banking Codes and Standards Board of India (BCSBI) is to act as an independent autonomous watchdog, set minimum standards of banking practice and benchmarks in customer service, and ensure fair treatment in dealings with banks.

Misrepresentation of product risks can be addressed by ensuring transparency and educating clients about the risks involved.

Stock exchanges are the first recourse for certain categories of complaints against listed companies.

The purpose of the grievance redressal system in banking is to minimize customer grievances, ensure fair treatment in dealings with banks, and provide prompt redressal of customer complaints.

One of the requirements for investment advisers registered with the SEC is providing transparent fee disclosure to clients.

Disputes related to interest and fees, issues related to ATM cards, debit cards, and credit cards, and complaints against Non-banking Finance Companies (NBF can be referred to the Banking Ombudsman.

Investors should avoid dealing with unregistered entities to protect their interests and financial security. They should only rely on advice from registered investment advisers and not make decisions based on stock tips or messages.

Investment advisers need to be ethical role models to inspire trust and confidence in their clients.

The primary focus of a financial intermediary should be on serving the needs of clients.

An Insurance Ombudsman must make a recommendation within one month of receiving a complaint.

Policyholders can register complaints with IRDAI online through its Integrated Grievance Management System (IGMS).

According to the Australian Guidelines, an adviser should take steps such as identifying the client’s financial situation, needs, and objectives, investigating the most appropriate products relevant to the client’s circumstances, and basing all judgments on the client’s relevant circumstances to satisfy the ‘best interests’ standard.

If the complainant accepts the recommendation, they should inform the insurance company to proceed with the recommended settlement.

If a client is not satisfied with the response of the intermediary, they can lodge their grievances with SEBI through the SCORES system.

The role of a financial intermediary is to channelize domestic savings into various investment vehicles.

The guiding principle in resolving ethical dilemmas should be to do the highest amount of good for all those involved.

Ethical behavior can help build a good reputation in the community for an investment adviser.

An Insurance Ombudsman can address disputes related to premiums, agents, and claims, among others.

Apart from approaching the court, investors have the option to utilize the arbitration mechanism as an alternative dispute redressal mechanism.

Such complaints can be filed with the Ministry of Company Affairs on its website, as specified for non-repayment of deposits by companies or unlisted bonds and debentures.

Complaints related to the non-repayment of deposits by an NBFC should be registered with the National Company Law Tribunal (NCLT) or the Consumer forum.

As per the Guidelines for Grievance Redressal by Insurance Companies, an insurance company is required to resolve a grievance within 2 weeks.

Ethics can be defined as a set of moral principles that influence behavior.

If a listed company does not redress a complaint within 30 days, the direct complaints shall be forwarded to the Designated Stock Exchange (DSE) through the SCORES platform.

IRDAI regulations require complaints to be resolved within 15 days.

If ethical principles are not followed, respect and trust can be lost, which can have severe consequences for the business.

Investors should insist on their risk profiling being conducted before accepting investment advice. This ensures that the advice is aligned with the investor’s risk tolerance and helps in selecting suitable investment alternatives.

The Insurance Ombudsman is responsible for mediating complaints between the complainant and the insurance company and recommending fair settlements.

The “Client First” principle requires investment advisers to prioritize the interests of the client above all else.

An ethical dilemma is a situation where a person has to make a decision between two alternatives, neither of which is superior.

An intermediary needs to ensure due skill and diligence, exercise independent professional judgment, and not act in collusion with other intermediaries while rendering service to investors.

An investment adviser is responsible for ensuring that the investment advice and related investments are appropriate to the client’s risk profile. They should have a documented process for selecting investments based on the client’s investment objectives and financial situation and must understand the nature and risks of the selected products or assets.

The SEBI Act of 1992 establishes a Board to protect the interests of investors in securities and regulate the securities market.

Individuals registered as investment advisers must have net tangible assets of value not less than five lakh rupees.

If an investment adviser contravenes provisions of the SEBI Act, fails to furnish required information, provides false information, fails to submit returns or reports, does not cooperate in inquiries, inspections, or investigations, fails to resolve complaints, or fails to provide satisfactory replies to SEBI, they can be dealt with in the manner provided under the SEBI (Intermediaries) Regulations, 200

SEBI recognizes a wholly-owned subsidiary of the stock exchange to administer and supervise registered Investment Advisers (IAs). The subsidiary is responsible for on-site and off-site supervision, grievance redressal, administrative actions, monitoring activities, and reporting to SEBI.

Any dispute between an investment adviser and their client may be resolved through arbitration or through an Ombudsman authorized or appointed by any regulatory authority as applicable.

Persons associated with investment advice must have a professional qualification as provided in clause ( of sub-regulation (1) of regulation 7, and a minimum experience of at least two years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

Section 6 of FEMA specifies the capital account transactions that are permissible, including investments in foreign securities, maintenance of foreign currency accounts, and remittance of capital assets.

An order of guardianship can be applied for by the person desirous of being the guardian, relative or friend of the minor, or the Collector.

An Investment Adviser can charge fees for providing investment advice in various ways, including a fixed rate per hour, a percentage of the client’s investment value, or a flat monthly fee.

The Guardian and Wards Act defines a “minor” as a person below the age of 18 years.

The SEBI Act 1992 regulates the registration and regulation of depositories.

Section 12 AA of PMLA requires reporting entities to verify the identity of clients undertaking specified transactions by authentication under the Aadhaar Act, 2016, and take additional steps to examine ownership, financial position, and record the purpose of the transaction.

Investment Advisers operating in an IFSC must comply with the Investment Adviser Regulations, guidelines, and circulars issued by SEBI. They can provide advisory services only to eligible persons mentioned in the IFSC Guidelines. Residents outside India and non-resident Indians seeking advice must comply with applicable guidelines of relevant overseas regulators/authorities.

An individual investment adviser is not allowed to provide distribution services. They should not provide advice to a client who is receiving distribution services from other family members.

An intermediary can increase charges/fees for its services, but it should provide proper advance notice to its clients/investors.

Under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, fraud is defined as any act, expression, omission, or concealment committed to induce another person or his agent to deal in securities, irrespective of whether there is wrongful gain or avoidance of any loss. It includes various instances such as a wilful misrepresentation of the truth or concealment of material fact, suggesting a fact that is not true, active concealment of a fact, promising without any intention of performing it, and making a representation in a reckless and careless manner.

Individuals registered as investment advisers with more than 150 clients in total must apply for registration as non-individual investment advisers as specified by SEBI.

An investment adviser must follow the Know Your Client (KY procedure as specified by SEBI.

Section 3 of the PMLA states that a person shall be guilty of the offense of money laundering if they are directly or indirectly involved in any process or activity connected with the proceeds of crime, including concealment, possession, acquisition, use, projecting, or claiming it as untainted property.

An investment adviser is obligated to act in a fiduciary capacity towards its clients under the SEBI (Investment Adviser) Regulations, 201

The objective of FEMA is to promote the orderly development and maintenance of the foreign exchange market in India.

The SEBI (Prohibition of Insider Trading) Regulations, 2015 serve the purpose of prohibiting insider trading and ensuring fair trading practices.

Investment advisers must furnish information and reports as may be specified by SEBI from time to time.

An individual investment adviser or principal officer of a non-individual investment adviser registered under the SEBI (Investment Advisers) Regulation, 2013, must have certification on financial planning or fund or asset or portfolio management. This certification can be obtained from NISM or any other organization or institution or any recognized stock exchange in India, provided it is accredited by NISM.

“Assets under advice” refers to the aggregate net asset value of securities and investment products for which the investment adviser has rendered investment advice, irrespective of whether the implementation services are provided by the investment adviser or concluded by the client directly or through other service providers.

An intermediary’s primary responsibility is to protect the interests of investors and provide the best possible advice to its clients.

Reporting entities are required to maintain records of transactions, including information relating to transactions, for a period of five years from the date of the transaction between a client and the reporting entity.

In case of any conflict of interest between investment advisory activities and other activities, an investment adviser should disclose the conflict of interest to the client.

According to Section 4 of the Negotiable Instruments Act, 1881, a “promissory note” is an instrument in writing containing an unconditional undertaking to pay a certain sum of money to a certain person.

An investment adviser is required to promptly redress client grievances. They must have adequate procedures in place for expeditious grievance redressal.

SEBI may specify any other person who is exempt from the requirement of registration as an investment adviser under the SEBI (Investment Advisers) Regulation, 201

The Guardian and Wards Act protects the interests of minors and secures their property.

If the situation has changed during the fifteen-day period, an investment adviser may enter into a transaction on their own account after providing a revised assessment to the client at least 24 hours in advance.

The Indian Contract Act provides the foundation for all contracts in trade and industry in India.

No, an investment adviser cannot act on its own account to sell securities or purchase securities from a client.

To be recognized for administering and supervising IAs, a stock exchange subsidiary must meet eligibility criteria, including a minimum of 15 years of existence, a minimum net worth of INR 200 crores, nation-wide terminals, and Investor Service Centers (ISCs) in at least 20 cities.

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 prohibit fraudulent, unfair, and manipulative trade practices in securities.

An investment adviser should obtain information such as age, investment objective, investment horizon, income details, existing assets and liabilities, risk appetite, and liability/borrowing details from the client for the purpose of giving investment advice.

“Foreign investment” refers to investment made by a person resident outside India in capital instruments of an Indian company or to the capital of an LLP.

The SEBI Act 1992 regulates the business in stock exchanges and other securities markets.

FATCA stands for Foreign Account Tax Compliance Act.

An intermediary should ensure that adequate disclosures are made to clients/investors in a comprehensible and timely manner to enable them to make balanced and informed decisions. It should not provide misleading information or make exaggerated statements about its qualifications or achievements.

A promissory note, bill of exchange, or cheque is payable to order if it is expressed to be payable to a particular person and does not contain words prohibiting transfer.

An investment adviser is required to maintain client records, including Know Your Client records, risk profiling and assessment, suitability assessment, copies of agreements, investment advice provided, and rationale for five years in either physical or electronic format.

An “insider” is defined as any person who is a connected person or is in possession of or has access to unpublished price sensitive information.

Insider trading based on unpublished price sensitive information gives an undue advantage to insiders and affects market integrity.

“Investment advice” refers to advice relating to investing in, purchasing, selling, or otherwise dealing in securities or investment products, and advice on investment portfolios containing securities or investment products, whether written, oral, or through any other means of communication for the benefit of the client. It also includes financial planning, but excludes advice given through widely available public media.

A certificate granted under the SEBI (Investment Adviser) Regulations, 2013, is subject to the condition that the investment adviser shall abide by the provisions of the SEBI Act 199

Investment advisers are required to act honestly, fairly, and in the best interests of their clients. This includes diligence, having appropriate resources and procedures, seeking relevant client information, making adequate disclosures, charging fair and reasonable fees, managing conflicts of interest, and complying with regulatory requirements.

The intermediary is responsible for the acts or omissions of its employees and agents in respect to the conduct of its business.

The “principal officer” refers to the managing director, designated director, managing partner, executive chairman of the board, or equivalent management body who is responsible for the overall function of the business and operations of a non-individual investment adviser.

An investment adviser should disclose all material information about itself, including its business, disciplinary history, terms and conditions of advisory services, affiliations with other intermediaries, holding or position in advised securities, and any conflicts of interest that may compromise its objectivity or independence.

SEBI’s AML/CFT guidelines apply to all registered intermediaries operating in the securities market, including their branches and subsidiaries located abroad.

An individual investment adviser or principal officer of a non-individual investment adviser registered as an investment adviser must have a minimum experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.

Custodial Institutions, Depository Institutions, Investment Entities, and Specified Insurance Companies are the categories of financial institutions that are required to maintain and report certain information under FATCA and CRS.

The Negotiable Instruments Act defines a “bill of exchange” as an instrument in writing containing an unconditional order to pay a certain sum of money to a certain person.

“Financial planning” includes the analysis of clients’ current financial situation, identification of their financial goals, and developing and recommending financial strategies to realize those goals.

The risk profile of the client should be communicated to the client after the completion of the risk assessment.

The SEBI Act 1992 regulates the registration and regulation of stock brokers, prohibition of insider trading, and levying fees for carrying out the purposes of the Act.

The SEBI Act 1992 prohibits insider trading in securities.

Advocates, solicitors, or law firms providing investment advice to their clients incidental to their legal practice are exempt from the requirement of registration as an investment adviser under the SEBI (Investment Advisers) Regulation, 201

Non-individual investment advisers should maintain an arm’s length relationship between their activities as investment advisers and distributors by providing advisory services through a separately identifiable department or division. This helps ensure clear segregation between the two functions.

The Negotiable Instruments Act, 1881 defines and amends the law relating to promissory notes, bills of exchange, and cheques.

An investment adviser, whether a body corporate or a partnership firm, must appoint a compliance officer who is responsible for monitoring the compliance of the investment adviser with the requirements of the Act, regulations, notifications, guidelines, and instructions issued by SEBI.

All reporting entities, including banking companies, financial institutions, intermediaries, and persons carrying on designated businesses or professions, are required to maintain records of documents evidencing the identity of clients and beneficial owners.

An intermediary should be prompt in disbursing dividends, interests, or any such accrual income received or collected on behalf of its clients/investors.

Pension advisors who offer investment advice solely on pension products and are registered with the Pension Fund Regulatory and Development Authority for such activity are exempt from the requirement of registration as an investment adviser under the SEBI (Investment Advisers) Regulation, 201

Risk profiling is conducted to assess the client’s attitude towards risk, possible loss in the portfolio, and willingness to pursue an investment plan after understanding the underlying risks.

The Insolvency and Bankruptcy Code, 2016 consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals.

Both individual and non-individual investors who wish to invest in securities markets are required to be KYC compliant.

The Foreign Exchange Management Act (FEM is responsible for consolidating and amending the law relating to foreign exchange, external trade, and payments in India.

The term used for the procedure prescribed by SEBI for identifying and verifying client details is KYC (Know Your Client).

In case of a change in control of an investment adviser, prior approval from SEBI must be obtained.

The “family of client” includes the individual client, dependent spouse, dependent children, and dependent parents.

The “family of an individual investment adviser” includes the individual investment adviser, spouse, children, and parents.

According to Regulation 15EB of the SEBI Act 1992, if an investment adviser fails to comply with SEBI regulations or directions, they can be liable for a penalty of not less than Rs. 1 lakh per day of non-compliance, subject to a maximum of Rs. 1 crore.

No person can act as an investment adviser or hold themselves out as an investment adviser unless they have obtained a certificate of registration from SEBI under the SEBI (Investment Adviser) Regulations, 201 The certificate of registration granted by SEBI is valid until it is suspended or canceled by SEBI.

“Net worth” for non-individual investment advisers is defined as the aggregate value of paid-up share capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses, deferred expenditure not written off, including miscellaneous expenses not written off, and net worth requirement for other services offered by the advisers in accordance with the applicable rules and regulations.

An investment adviser should not enter into transactions on its own account that are contrary to its advice given to clients for a period of fifteen days from the day of such advice.

For a contract to be lawful under the Indian Contract Act, it must have an intention to create legal relations, free consent of the parties, and a lawful purpose.

Certain categories of persons are exempt from the requirement of registration as an investment adviser. This includes a person who gives general comments in good faith on trends in the financial or securities market, an insurance agent offering investment advice solely in insurance products, and a distributor of mutual funds providing investment advice incidental to their primary activity.

The Reserve Bank of India (RBI) and the Government have the authority to issue regulations and rules under FEMA.

The senior management of a registered investment adviser body corporate bears primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the body corporate.

Investment advisers providing implementation services should ensure that no consideration, including any commission or referral fees, whether embedded or indirect, is received at the investment adviser’s group or family level. They should provide implementation services to their advisory clients only through direct schemes/products in the securities market.

An individual investment adviser or principal officer of a non-individual investment adviser must have a professional qualification or post-graduate degree or post-graduate diploma (minimum two years in duration) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance, or actuarial science from a recognized university or institution. The option “Post-graduate degree in economics” is not among the mentioned qualifications.

BSE Administration & Supervision Limited has been granted recognition for the administration and supervision of Investment Advisers.

A negotiable instrument may be made payable to two or more payees jointly or in the alternative.

The Securities Contracts Regulation Act (SCRA 1956) provides regulatory jurisdiction over stock exchanges, contracts in securities, and listing of securities on stock exchanges.

The SEBI Act 1992 empowers SEBI to impose penalties and initiate adjudication proceedings against intermediaries who default on certain grounds.

A “negotiable instrument” is the term used to define a promissory note, bill of exchange, or cheque that is payable either to order or to bearer.

As per Section 6 of the Negotiable Instruments Act, 1881, a “cheque” is a bill of exchange drawn on a specified banker and payable on demand.

“Non-individual” refers to a body corporate, including a limited liability partnership and a partnership firm.

Existing portfolio managers offering only investment advisory services may apply for registration under the SEBI (Investment Advisers) Regulation, 2013, after the expiry of their current certificate of registration as a portfolio manager.

“Persons associated with investment advice” refer to any member, partner, officer, director, employee, or sales staff of an investment adviser, including anyone occupying a similar status or performing a similar function, irrespective of the nature of association with the investment adviser, who is engaged in providing investment advisory services to the clients of the investment adviser.

In the context of client-level segregation for non-individual investment advisers, “group” refers to an entity related to the investment adviser by ownership or control. It includes entities such as holding companies, subsidiaries, associates, subsidiaries of holding companies, investing companies, and ventures of the company as per the provisions of the Companies Act, 201

An investment adviser must conduct a yearly audit of compliance with regulatory requirements. The audit should be conducted by a qualified external professional such as a member of the Institute of Chartered Accountants of India or the Institute of Company Secretaries of India, and a report of the audit should be submitted as specified by SEBI.

The information obtained during enhanced due diligence measures should be maintained for a period of five years from the date of the transaction between a client and the reporting entity.

An “investment adviser” is any person who, for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons. It includes anyone who holds out themselves as an investment adviser, by any name.

The SEBI Act 1992 regulates intermediaries associated with the securities market.

The main objective of the PMLA is to prevent money laundering and provide for the confiscation of property derived from money laundering activities.

Individuals are required to provide proof of identity and proof of address for KYC compliance.

An intermediary should observe high standards of integrity, dignity, fairness, ethics, and professionalism in its business conduct.

When using risk profiling tools, the investment adviser should ensure that the tools are fit for the purpose, limitations are identified and mitigated, and any questions or descriptions in questionnaires used are fair, clear, and not misleading. The questionnaire should not be vague, use double negatives, or contain leading questions.

Persons providing investment advice exclusively to clients based out of India, such as Non-Resident Indians or Persons of Indian Origin, are exempt from the requirement of registration under the SEBI (Investment Advisers) Regulation, 201

Investors typically have objectives such as preservation of capital, regular income, and capital appreciation. These objectives reflect different risk-return-liquidity preferences and time horizons. Some investors prioritize capital preservation and aim for stable returns with low risk, while others seek regular income from their investments. Capital appreciation objectives are focused on achieving long-term growth and higher returns. Investment objectives guide the asset allocation decision and help determine the appropriate mix of asset classes to achieve the desired outcomes.

The envelope curve containing the set of best possible combinations of a portfolio is known as the efficient portfolio. It represents the optimal portfolios that offer the highest expected return for a given level of risk or the lowest risk for a given expected return.

The Cumulative Wealth Relative represents the ending value of one unit of money over a period of time. It shows how much one rupee has grown in the given example.

The costs associated with portfolio rebalancing include transaction costs (e.g., research costs, brokerage costs) and tax costs.

Correlation plays a significant role in asset allocation decisions. Generally, investments within the same asset class have low correlation, meaning their returns are not strongly related. On the other hand, different asset classes tend to have high correlation, indicating a lower level of similarity in their returns. By understanding these correlation relationships, investors can build diversified portfolios by selecting asset classes that have low correlation with each other, aiming to reduce overall portfolio risk and capture potential returns from different sources.

Investors aim to maximize their one-period expected utility, considering the potential outcomes and associated risks.

The Information Ratio is calculated by dividing the difference between the portfolio return (Rp) and the benchmark return (R by the standard deviation of the difference between the portfolio return and the benchmark return (Stdev (p-). It measures the fund manager’s ability to generate excess returns compared to the benchmark, adjusted for the amount of risk taken.