Guidelines for Portfolio Managers

Guidelines for Portfolio Managers

SEBI/HO/IMD/DF1/CIR/P/2020/26 February 13, 2020

 

1. Securities and Exchange Board of India (SEBI), based on the recommendations of a Working Group and inputs from public consultation, reviewed the framework for regulation of Portfolio Managers and the SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”) has been notified on January 16, 2020. (Available at Link)

2. In addition to the above, certain changes to the regulatory framework for Portfolio Managers are mandated as under:  

A. Fees and Charges 

3. In partial modification to Cir. /IMD/DF/13/2010 dated October 05, 2010 on Regulation of Fees and Charges, the following is mandated:

(i) As provided in Regulation 22 (11) of the PMS Regulations, no upfront fees shall be charged by the Portfolio Managers, either directly or indirectly, to the clients.

(ii) Brokerage at actuals shall be charged to clients as expense. 

(iii) Operating expenses excluding brokerage, over and above the fees charged for Portfolio Management Service, shall not exceed 0.50% per annum of the client’s average daily Assets under Management (AUM).

(iv) In case client portfolio is redeemed in part or full, the exit load charged shall be as under:

(a) In the first year of investment, maximum of 3% of the amount redeemed. 

(b) In the second year of investment, maximum of 2% of the amount redeemed. 

(c) In the third year of investment, maximum of 1% of the amount redeemed. 

(d) After a period of three years from the date of investment, no exit load.

(iv) The Annexure to the Client agreement referred in Paragraph 4 g) of the aforementioned Circular shall be suitably modified for a sample portfolio of INR 50 Lacs as against the present illustration for INR 10 Lacs.

(v) 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. Any charges to self/associate shall not be at rates more than that paid to the non associates providing the same service. 

B. Direct on-boarding of clients by Portfolio Managers

4. Portfolio Managers shall provide an option to clients to be on-boarded directly, without intermediation of persons engaged in distribution services. 

5. Portfolio Managers shall prominently disclose in its Disclosure Documents, marketing material and on its website, about the option for direct on-boarding. 

6. At the time of on-boarding of clients directly, no charges except statutory charges shall be levied.

C. Nomenclature ‘Investment Approach’ 

7. The information about Investment Approaches offered by Portfolio Managers, shall be uniform across all types of regulatory reporting, client reporting, disclosure document, marketing materials and any such document which refer to services offered by Portfolio Managers. 

8. Any description of investment approach provided by Portfolio Managers shall, inter-alia, include:

(i) investment objective 

(ii) description of types of securities e.g. equity or debt, listed or unlisted, convertible instruments, etc.

(iii) basis of selection of such types of securities as part of the investment approach

(iv) allocation of portfolio across types of securities

(v) appropriate benchmark to compare performance and basis for choice of benchmark

(vi) indicative tenure or investment horizon

(vii) risks associated with the investment approach

(viii) other salient features, if any.    

D. Periodic reporting by Portfolio Managers

9. In partial modification to Circular IMD/PMS/CIR/1/21727/03 dated November 18, 2003 on ‘Improvement in Corporate Governance’, Portfolio Managers shall report to SEBI on compliance with the provisions of the said Circular on an annual basis as against bi-annual submission.

10. SEBI Circular No. IMD/DOF-1/PMS/Cir-1/2010 dated March 15, 2010 stands superseded. However, with effect from Financial Year 2019-20, Portfolio Managers shall submit the following information to the Board: 

(i) A certificate from the qualified Chartered Accountant certifying the net-worth as on March 31, every year based on audited account within 6 months from the end of Financial Year.

(ii) A certificate of compliance with PMS Regulations and circulars issued thereunder, duly signed by the Principal Officer, within 60 days of end of each financial year. Further, details of noncompliance along with the corrective actions, if any, duly approved by Board of the portfolio manager. 

11. Further, in partial modification to Cir. /IMD/DF/14/2010 dated October 08, 2010, Portfolio Managers shall submit a monthly report regarding their portfolio management activity, on SEBI Intermediaries Portal within 7 working days of the end of each month, as per the revised format enclosed in Annexure A.

12. Portfolio Managers shall furnish a report in the format provided at Annexure B, to their clients on a quarterly basis.  

E. Reporting of Performance by Portfolio Managers

13. Further to Regulation 22 (4)(e) of PMS Regulations, it is clarified that the Portfolio Managers shall:

(i) Consider all cash holdings and investments in liquid funds, for calculation of performance. 

(ii) Report performance data net of all fees and all expenses (including taxes).

(iii) Clearly disclose any change in investment approach that may impact the performance of client portfolio, in the marketing material.

(iv) Ensure that performance reported in all marketing material and website of the Portfolio Manager is the same as that reported to SEBI.

(v) Ensure that the aggregate performance of the Portfolio Manager (firm-level performance) reported in any document shall be same as the combined performance of all the portfolios managed by the Portfolio Manager. 

(vi) Provide a disclaimer in all marketing material that the performance related information provided therein is not verified by SEBI.

14. The firm-level performance data of Portfolio Managers shall be audited annually. Confirmation of compliance with Paragraph 13 of this Circular shall be reported to SEBI within 60 days of end of each financial year. The said report to SEBI shall be certified by the Directors/Partners of the Portfolio Manager or by person(s) authorized by the Board of Directors/Partners of the Portfolio Manager. 

F. Disclosure Documents

15. Material change, for the purpose of Regulation 22 (7) of PMS Regulations, shall include change in control of the Portfolio Manager, Principal Officer, fees charged, charges associated with the services offered, investment approaches offered (along with the impact of such change) and such other changes as specified by SEBI from time to time.

G. Supervision of Distributors  

16. Further to Regulation 23(10) of PMS Regulations, it is clarified that Portfolio Managers shall:

(i) Utilize services of only such distributors (whether known as Channel Partners, Agents, Referral Interfaces or by any other name) who have a valid AMFI Registration Number or have cleared NISM Series-V-A exam.

(ii) Pay fees or commission to distributors only on trail-basis. Further, any fees or commission paid shall be only from the fees received by Portfolio Managers. 

(iii) Ensure that prospective clients are informed about the fees or commission to be earned by the distributors for on-boarding them to specific investment approaches.

(iv) Ensure that distributors abide by the Code of Conduct as specified in Annexure C.

(v) Have mechanism to independently verify the compliance of its distributors with the Code of Conduct. 

(vi) Ensure that, within 15 days from the end of every financial year, a self-certification is also received from distributors with regard to compliance with Code of conduct. 

H. Applicability 

17. The provisions of this Circular shall be applicable with effect from May 01, 2020.

18. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with the provisions of Regulation 43 of the SEBI (Portfolio Managers) Regulations, 2020, to protect the interests of investors in securities market and to promote the development of, and to regulate the securities market.

19. This circular is available on SEBI website at www.sebi.gov.in under the category “Circulars” and “Info for – Portfolio Managers”.

_______________________________________________________________________

Annexure A

Format for Monthly Report to SEBI

 

I. Data for Discretionary Services

A. Break-up of clients of the Portfolio Manager

 

 

Particulars

 

Domestic Clients

Foreign Clients

 

PF/ EPFO

Corporates

Non-

Corporates

Non

Residents

FPI

Others

Total

No. of unique Clients as on last day of the month

 

 

 

 

 

 

 

Assets under Management (AUM) as on last day of the month

 

 

 

 

 

 

 

 

B. Break-up of assets under management of the Portfolio Manager

Investment Approach

 

Assets Under Management as on last day of the month (in INR crores)

 

 

Equity

Plain Debt

Structured Debt

Derivatives

Mutual Funds

Others

Total

 

Listed

Unlisted

Listed

Unlisted

Listed

Unlisted

Equity

Commodity

Others

Approach 1 

 

 

 

 

 

 

 

 

 

 

 

 

Approach 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Approach

‘N’

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

C. Transaction Data

Sl. No

Particulars

Figures

1

Sales in the month (in INR crores )

 

2

Purchases in the month (in INR crores )

 

3

Portfolio Turnover Ratio = (Higher of Purchases or Sales in the month /Average AUM)

 

 

D. Performance Data

Investment Approach

AUM (in INR Cr)

Returns (%)

Portfolio Turnover Ratio

1 month

1 year

1 month

1 year

Investment Approach 1

 

 

 

 

 

Benchmark 1

 

 

 

 

 

 

 

 

 

 

 

Investment Approach 2

 

 

 

 

 

 Benchmark 2

 

 

 

 

 

 

 

 

 

 

 

Investment Approach ‘N’

 

 

 

 

 

Benchmark ‘N’

 

 

 

 

 

Total

 

 

 

 

 

 

II. Data for Non Discretionary Services

E. Break-up of clients of the Portfolio Manager

 

 

Particulars

 

Domestic Clients

Foreign Clients

 

PF/ EPFO

Corporates

Non-

Corporates

Non

Residents

FPI

Others

Total

No. of unique Clients as on last day of the month

 

 

 

 

 

 

 

Assets under Management (AUM) as on last day of the month

 

 

 

 

 

 

 

 

F. Break-up of assets under management of the Portfolio Manager

 

Assets Under Management as on last day of the month (in INR crores)

 

 

Equity

Plain Debt

Structured Debt

Derivatives

Mutual Funds

Others

Total

Listed

Unlisted

Listed

Unlisted

Listed

Unlisted

Equity

Commodity

Others

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G. Transaction Data

Sl. No

Particulars

Figures

1

Sales in the month (in INR crores )

 

2

Purchases in the month (in INR crores )

 

3

Portfolio Turnover Ratio = (Higher of Purchases or Sales in the month /Average AUM)

 

 

H. Performance Data

AUM (in INR Cr)

Returns (%)

Portfolio Turnover Ratio

1 month

1 year

1 month

1 year

 

 

 

 

 

 

 

III. Data for Advisory Services

I. Break-up of client base of the Portfolio Manager 

 

 

Type of Client

 

Domestic Clients

Foreign Clients

 

PF/ EPFO

Corporates

Non-

Corporates

Non

Residents

FPI

Others

Total

No. of Clients as on last day of the month

 

 

 

 

 

 

 

Value       of       the

Assets for which Advisory Services are being given (Amount in INR

crores)

 

 

 

 

 

 

 

 

IV. Data on complaints

 

Type of Client

 

Total No. of complaints

 

Pending at the

beginning of the

month

Received during the month

Resolved during the month

Pending at the end of the  month

Domestic – PF/ EPFO

 

 

 

 

Domestic Corporates

 

 

 

 

Domestic Non-

Corporates

 

 

 

 

Foreign – NR

 

 

 

 

Foreign – FPI

 

 

 

 

Foreign -Others

 

 

 

 

Total

 

 

 

 

Notes:

Data on investor complaints registered through SCORES or which are directly received by Portfolio Manager to be provided

 

_________________________________________________________________________________________

Annexure B

Format for Quarterly Report to Clients

 

Account Statement for Quarter ended   ___________

Email ID:_________

Tel Number:________

Name of Distributor:_________

A. Account Overview:

Particulars

 

Name of the Client

 

PAN

 

Address

 

Email

 

Phone number

 

Unique Client Code

 

Account Activation date 

 

Type of Portfolio Management Service

 

Investment approach for the account 

 

Benchmark for the investment approach

 

Amount managed under the Investment Approach

 

Notes:

(i) If multiple investment approaches are used for management of the client account, separate reports may be used for each such Investment Approach.

(ii) Details of joint holder, if applicable, needs to be provided.

(iii) In case of Clients coming from Direct plan, provide input as “Direct Plan” under head Name of Distributor.

(iv) For any request for change of facts as appearing above, kindly get in touch with [Email ID] or [Phone Number].

 

B. Portfolio Details:

 

Portfolio Allocation

 

Type of Security

Purchase Value

Market Value (as on quarter end)

Assets Under

Management

 

(in INR)

(in INR)

(%)

Equity

 

 

 

Plain Debt

 

 

 

Structured Debt

 

 

 

Equity Derivatives

 

 

 

Commodity Derivatives

 

 

 

 

Portfolio Allocation

 

Type of Security

Purchase Value

Market Value (as on quarter end)

Assets Under

Management

 

(in INR)

(in INR)

(%)

Goods

 

 

 

Mutual Funds

 

 

 

Cash and equivalent

 

 

 

Other Assets

 

 

 

Total

 

 

 

 

Portfolio Summary

 

 

Particulars

(in INR)

Portfolio Value at the beginning of quarter 

 

Portfolio Value at the end of quarter 

 

 

 

For the quarter

 

1. Capital Inflow

 

2. Capital Outflow

 

3. Interest Income

 

4. Dividend Income

 

5. Other Income

 

6. Management Fee 

 

7. Performance Fee 

 

8. Expenses at actuals

 

9. Other expenses

 

10. Realized Gain/ Loss

 

11. Unrealized Gain/ Loss

 

 

 

Commission paid to Distributor

 

Brokerage paid

 

 

C. Performance of Portfolio

Performance report for Client Portfolio and Investment Approach (%)

 

Particulars

1 Year

3 Years

5 Years

10 Years

Since Inception

Returns of Client Portfolio 

 

 

 

 

 

Aggregate Returns of Investment Approach

 

 

 

 

 

Benchmark Performance

 

 

 

 

 

 

[Disclaimer: Performance data for Portfolio Manager and Investment Approach provided hereunder is not verified by any regulatory authority]

 

D. Transaction Details:

(i) Capital Contribution (from inception till end of reporting period)

Date

Capital Inflow

Capital Outflow

 

 

 

 

 

 

Total

 

 

 

(ii) Investments (during the reporting period)

Security

Name 

Transaction

Date

Buy /

Sell

Quantity

Gross

Rate

Net Rate

Net Transaction

Value

 

 

 

 

 

 

 

 

(iii) Holding Report as of end of the quarter

Security Name

Quantity

Average

Cost 

Market

Rate

Total

Cost

Market

Value

% to

Portfolio

Equity A: B:

 

 

 

 

 

 

Debt  A: B:

 

 

 

 

 

 

Mutual Funds

A: B:

 

 

 

 

 

 

Commodities

A: B:

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

Cash & Cash

Equivalent

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

E. Other Important Information

  1. With regard to client portfolio, deviations from investment approach, if any
  2. With regard to debt securities, details of any delay in coupon payments, if any
  3. With regard to debt securities, details of default, if any
  4. With regard to portfolio allocation in equity and commodity derivatives, details of funds and securities held as collateral, if any.
  5. Details of Other assets outstanding to be received in Clients account for more than 3 months from the due date

Nature of Asset

Outstanding amount (In Rs.)

a. Coupon Payments

 

b. Dividends

 

c. Others

 

Total

 

 

6. Any other important information

 

________________________________________________

Annexure C

Code of Conduct for Distributors of Portfolio Management Services

 

(1) The Code of Conduct, as provided hereunder, shall be applicable to all persons involved in the distribution of Portfolio Management Services.

(2) All distributors shall:

(i) Adhere to SEBI (Portfolio Managers) Regulations, 2020 and circulars issued from time to time related to distributors, distribution, advertising practices of Portfolio Management Services, etc.

(ii) Maintain high standards of integrity, promptitude and fairness in the conduct of all their business.

(iii) Act with due skill, care and diligence in the conduct of all their business.

(iv) Consider investor's interest, risk profiling and suitability to their financial needs while marketing Portfolio Management Services

(v) Take necessary steps to ensure that the clients’ interest is protected.

(vi) Ensure that commission or incentive shall never form the basis for recommending Portfolio Management Services.

(vii) Be fully conversant with the Disclosure Document, Investment Approaches, fees and charges and the terms of agreement to be entered between the client and the Portfolio Manager.

(viii) Disclose to the clients all material information including the details of distribution commissions for various Investment Approaches.

(ix) Assist clients in completing KYC and In-Person Verification related procedures

(x) Provide full and latest information about investment approaches and also highlight the assumptions made in performance calculations, risk assessments, performance projections etc., if any, for such investment approaches.

(xi) Inform the clients about the risks and level of control over the administration of Portfolio associated with the type of Portfolio Management Services offered (i.e. Discretionary, Non-discretionary or Advisory).

(xii) Abstain from assuring returns in any type of Investment Approach and from any kind of mis-representation.

(xiii) Abstain from attracting clients through unethical means such as offer of rebate/gifts etc.

(xiv) Maintain necessary infrastructure to provide support to clients in timely receipt of disclosure document, statement of portfolio and performance, statement of fees, audit report, etc.

(xv) Maintain confidentiality of clients’ details, deals and transactions, which they come to know in their business relationship.

(xvi) Abstain from making negative statements about other Portfolio Managers or Investment Approaches. Make comparisons, if any, only with the similar and comparable products along with complete facts.

(xvii) Not indulge in any manipulative, fraudulent or deceptive practices or spread rumours with a view to make personal gain.

(xviii) Hold valid Certification, as specified by SEBI, at all times.


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