Informal Guidance – IL&FS Investmart Ltd.

Jul 23, 2004

Informal Guidance


Asst. General Manager

Investment Management Department

IMD/MD/ 16205 /04

July 23, 2004 


M/s IL & FS Investsmart Limited,

The IL & FS Financial Centre,

Plot C-22,

G Block, Bandra-Kurla Complex,

Bandra – (E)

Mumbai – 400 051


Dear Sir,


Sub: Request under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.

 Re: Your letters dated May 19, 2004 and June 09, 2004.


1.0 Please refer your letters dated May 19, 2004 and June 9, 2004, seeking “Interpretative Letter” under the captioned scheme. The “Interpretative Letter” has been sought on the issue as to whether ‘single stock scheme’ under discretionary portfolio management services would constitute management of ‘portfolio’ in terms of rule 2 (d) of the SEBI (Portfolio Managers) Rules 1993.


2.0 It is, inter-alia, informed by you that –

  1. You are proposing to launch a new sub-scheme ‘Value Select Profile Management Scheme’ under the ‘IL& FS Investsmart Customized Portfolio’ (ICP) Scheme of the portfolio management services.
  2. The proposal is to invest funds in a stock, which would be significantly undervalued and therefore have a substantial growth and value unlocking in due course of time.
  3. The scheme would be a single stock scheme launched for investors who have high risk profile.


3.0 You have not analysed all material facts and have not submitted your analysis of the rules and regulations as required under clause 6 of the captioned scheme. However, on the basis of the information submitted by you our view, on the query raised by you as mentioned above, is as under –

(i). In terms of rule 2 (e) of SEBI (Portfolio Managers) Rules, 1993 a portfolio manager inter alia undertakes on behalf of the client, management or administration of portfolio of securities in terms of the agreement with the client. The term ‘portfolio’ defined in rule 2 (d) of the said Rules as total holdings of securities belonging to any person. Thus, the management of portfolio by a portfolio manager is subject to the contract with the client and as per the SEBI (Portfolio Managers) Regulations, 1993.

(ii).  In terms of Rule 2 (f) of the Rules the discretionary portfolio manager exercises any degree of discretion as to the management of portfolio of securities of the client under the contract. Regulation 16 provides that the securities accepted by the portfolio manager shall not be managed by the portfolio manager except in terms of the agreement between the portfolio manager and the client. Therefore, a portfolio manager may manage portfolio of securities in terms of the agreement between the portfolio manager and the client subject to the disclosures requirements and investment limitation provided in the regulations.

(iii). In view of the above, you may manage portfolio consisting of a single stock subject to the terms and conditions of the agreement with the client and disclosure document including, inter alia the disclosure of attendant risks and other factors in terms of the Regulations and subject to other investment limitations provided in the Regulations.


4.0             This position is based on the representation made to the Division in your letters under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.


5.0             You may note that the above views are expressed only with respect to the clarification sought on applicability of SEBI (Portfolio Managers) Rules and Regulations, 1993 and do not affect the applicability of any other law or requirements.



Yours faithfully,

Medha Dev