Deputy General Manager
Investment Management Department
Supervision, Enforcement and Complaints (Division – 4)
HO/24/12/21(ll)2026-IMD-SEC4/I/15640/2026
July 08,2026
The Chief Executive Officer Association of Portfolio Managers in India
B -121,10th Floor, WeWork, Enam Sambhav, C – 20, G – Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051
Dear Sir,
Sub; Observations made during inspections of Portfolio Managers
Please refer to our earlier letter no. SEBI/HO/IMD/IMD-SEC4/P/OW/P/2025/28489/1 dated November 11, 2025, which communicated adverse observations of SEBI on certain practices of Portfolio Managers as noted in inspections. In continuation to the above letter, SEBI, after examination of various observations made by the inspection teams for the subsequent inspection period i.e. FY 2024-25 with corresponding comments of Portfolio Managers, has taken adverse view regarding certain practices followed and have issued advisories to the concerned Portfolio Managers.
Summary of such practices is given below:
I. Deficiencies observed during the inspection:
A. Investment activities related:
1. Portfolio Manager (“PM”) invested client’s fund based on the advice of other entity in violation of Regulation 24 (10) of SEBI (Portfolio Managers) Regulations 2020 (“PMS Regulations”) and PM outsourced their core business activities including investment related activities in violation of SEBI Circular CIR/MIRSD/24/2011 dated 15th December 2011;
2. PM made exaggerated and misleading claims about usage of Artificial Intelligence / Machine Learning tools in providing investment advice/managing client’s investments;
3. New investments in mutual fund units continued to be made under the regular plans, which is not in compliance with Regulation 24 (5) of PMS Regulations;
4. PM failed to maintain investment rationale for sell and trim transactions in securities;
5. PM could not furnish prior consent of clients for investments made in the securities of associates / related parties;
B. Operations related:
6. PM failed to furnish instructions /confirmations of non-discretionary clients with respect to their investments;
7. PM failed to ensure inter se allocation is done on a pro rata basis as required under Regulation 24(12) of PMS Regulations;
8. PM accrued/charged exit load on the dividend paid to the client on their investments. Such dividend payments are not consequent to redemption request initiated by the client and hence accruing/charging of exit load on the same is not in line with Para 6.1.4 of SEBI Master Circular for Portfolio Managers dated July 16, 2025 (“Master Circular”);
9. PM accepted unlisted security from discretionary PMS client as a part of minimum investible corpus;
10. PM failed to ensure that Operating Expenses has not exceed 0.50% per annum of the client’s average daily AUM;
11. PM failed to comply with the requirement stipulated in Para 6.1.3.4 of Master Circular – Charges for all transactions in a financial year (Broking, Demat, custody etc.) through self or associates shall be capped at 20% by value per associate (including self) per service;
12. PM failed to ensure distributors are in compliance with Code of Conduct specified in Annexure 2B to the Master Circular;
C. Dealing Room related:
13. PM failed to ensure that Dealing Team is suitably staffed in compliance with Para 2.7.2 of Master Circular;
14. PM failed to restrict access to mobile phones or internet facilities including access to personal emails on laptop/PCs inside the dealing room;
15. PM failed to maintain the audit trail of the instructions from fund manager to the dealers as telephonic instructions from the Fund manager to dealer are not done over recorded lines. Further, outgoing calls from dealer were not recorded;
D. Disclosure and reporting related:
16. PM failed to provide link to access fee calculation tool as stipulated under Para 6.1.3 A of Master Circular;
17. Quarterly statements sent to clients failed to capture both the Email ID and Phone number of concerned distributors as stipulated;
18. PM failed to provide the disclaimer – “Performance data for Portfolio Manager and Investment Approach provided hereunder is not verified by any regulatory authority” in the quarterly client reports as stipulated in Annexure 5D: Format of Quarterly Reporting to Client’ of Master Circular;
19. PM failed to disclose the transactions of purchase and sale of securities by its employees who are directly involved in investment operations, which are having conflict of interest with the transactions in the client’s portfolio in the Disclosure Document;
20. PM has not disclosed audit observations for the immediately preceding three years and range of fees charged under various heads in Disclosure Document;
21. PM failed to disclose about the option for direct on-boarding in the disclosure document and marketing material;
22. PM failed to ensure disclosure regrading change in investment approach that may impact the performance of client portfolio in the marketing material as stipulated in Para 4.5.3.3 of Master Circular;
23. PM failed to update details of Principal Officer on SI Portal;
24. PM failed to provide correct information in the monthly reports to SEBI and failed to file the same within 7 working days of the end of each month;
E. Deficiency in client on-boarding:
25. PM failed to maintain complete record of clients onboarded digitally – agreements entered with the client has not captured e-sign;
26. Discrepancies were observed in recording of investment profile of clients in the concerned section of onboarding document and the same is undated lacking audit trail;
27. PM did not provide MITC document to the existing clients;
F. Deficiency in Client Servicing and protection of investor interest:
27. PM made exaggerated claims and selective comparisons with the performances of other Portfolio Managers in the marketing materials creating unfair competition, thereby placing other portfolio managers in a disadvantageous position.
28. PM failed to fumish/despatch quarterly reports to the clients through email or other mode of communication, in addition to the access provided through investor portal, as per the requirements of Regulation 31(2) of SEBIPMS Regulations.
G. Governance related:
29. Substantial delays in conduct and finalisation of internal audit were observed;
30. Internal audit report did not commensurate with coverage and scope of work as agreed with internal auditor;
II. Advisories-:
PM was advised to:
1) closely monitor the transactions in securities by their KMPs/Directors/Designated partners, considering the proximity of their trades to trades of PMS on behalf of their clients and ensure strict compliance with Employee Trading Policy and Schedule C to SEBI (Prohibition of Insider Trading) Regulations, 2015 including provisions concerning restricted securities, pre-clearance for trades, restriction on contra trades, etc.;
2) provide scenarios in their Trade Execution Allocation Policy, wherein, the Portfolio Manager is required to place certain margins / collaterals in order to execute certain transactions, details on how such margins / collaterals shall be segregated / placed from amongst various clients, without affecting the interest of any client in line with Para 2.6.2.3;
3) ensure policies including the Investor Grievance Redressal Policy, Investment and Trade Execution Allocation Policy, Anti Money Laundering Policy contains version controls including but not limited to documents name, policy owner, original policy date, current review date, next review date, document availability, change history containing details like version, date of approval of board, details of changes and who has prepared the policy, etc.;
4) ensure adequate system-level controls and maker-checker mechanisms are implemented and periodically tested to prevent recurrence of excess selling and ensure all orders are placed strictly within clients’ available securities with proper audit trails;
5) review the Cyber Security & Cyber Resilience Policy periodically and implement SEBI Circular no. HO/13/19/12(1 )2026-ITD-1 _CIMGI/10873/2026 dated 05.05.2026 in letter and in spirit;
6) avoid delayed/incorrect data submission for offsite supervision of SEBI;
7) maintain formal recording of specific risk categorizations of Clients to have enhanced due diligence as required under Clause 26 of SEBI circular SEBI/HO/MIRSD/MIRSDSECFATF/P/CIR/2024/78 dated June 06, 2024 – SEBI Guidelines on AML Standards and CFT/Obligations of Securities Market Intermediaries;
8) obtain and maintain updated documents from non-individual clients including shareholding pattern, Directors/partners list, Financial Statements, etc. to determine the ultimate beneficial owner/person in control or identity of the client or the person on whose behalf the transaction is being conducted. (Clause 14 of SEBI circular SEBI/HO/MIRSD/MIRSDSECFATF/P/CIR/2024/78 dated June 06, 2024).
9) Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) / Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed thereunder, requires registered intermediaries to ensure that appropriate steps are taken to enable suspicious transactions to be recognized / determined and have appropriate procedures for reporting them. PM is advised to maintain records indicating alert generation, examination and processing for suspicious transactions.
10) Certain clauses of agreement entered into with clients, inter alia, phrased as under:
(i) Portfolio Manager may appoint agents, representatives, service providers or other persons as the Portfolio Manager may deem fit from time to time, to perform any of the functions which the Portfolio Manager is empowered/obliseated to perform…:
(ii) Losses arising out of any act, omission or commission of the Portfolio Manager under this agreement will be solely at the risk of the client…;
(iii) The client shall not question any of the acts, deeds, omissions or commissions or things done or performed by the Portfolio Manager…;
(iv) Agreement with the clients indicated timeline for submission of reports on investments to the client as half-yearly instead of quarterly;
PM is advised to review and revise the clauses of the agreement in line with the letter and spirit of PMS Regulations and circulars issued thereunder, including SEBI Circular no. CIR/MIRSD/24/2011 dated December 15, 2011 and Clause 4.2.3 of Master Circular.
It may be noted that the above list of observations is not exhaustive but contain only few of the major findings observed during the inspections of the Portfolio Managers conducted in the recent years. SEBI takes a view in different matters based on the nature of violations, quality of evidence, loss to investors, repetition of violations and other mitigating factors. While necessary actions taken/advisories have been issued to the concerned Portfolio Managers with respect to the deficiencies found during the inspections, the above findings/advisories issued maybe shared with all the members of the APMI to ensure:
(i) improvement in systems, processes, and controls to ensure compliance with SEBI (Portfolio Managers) Regulations, 2020 and Circulars issued thereunder from time to time and to have audit trails indicating regrading compliance of the same; and
(ii) to have uniform best practices across all Portfolio Managers to ensure better compliance with SEBI (Portfolio Managers) Regulations, 2020 and Circulars issued thereunder in letter and spirit.
All Members of APMI may be advised to place the said advisory before their Board and to take corrective actions in respect of the observations and advisories listed as above. Further members maybe advised to ensure strict compliance with the SEBI (Portfolio Managers) Regulations, 2020 and all the Circulars issued by SEBI from time to time. Any repetition of the violations or noncompliance would be viewed seriously.
Yours faithfully
R Anand
