Registration Details And Client FAQs

In this section of the module, we will discuss some rules and regulations related to portfolio management services in India. 

What is the process of obtaining registration as a portfolio manager from SEBI?

The applicant to register as a portfolio manager is required to pay an application fee of ₹1 lakh through a demand draft drawn in favour of ‘Securities and Exchange Board of India’, payable at Mumbai. This fee is non refundable.The application form has form A. The form needs to be posted to the Head Office of SEBI in Mumbai.

Capital adequacy requirement of a portfolio manager?

A minimum net worth of ₹2 crores is required.

Does the portfolio manager need to pay any registration fee?

Yes. Each portfolio manager needs to pay ₹10 lakhs as registration fee. This fee is paid at the time of grant of certificate of registration by SEBI.

What is the validity of a certificate of registration?

The validity of the certificate of registration is for three years after which the portfolio manager needs to apply for renewal of its registration certificate to SEBI. The renewal needs to be applied for three months before the expiry of the validity of the certificate.

What is the amount of renewal fees required to be paid by the portfolio manager?

The amount of renewal fees is ₹5 lakhs.

Is there any defined value of funds or securities or threshold under which a portfolio manager cannot accept from the client while opening the account?

The portfolio manager needs to accept a minimum ₹5 lakhs or securities having a minimum value of ₹5 lakhs from the client while opening the account for the purpose of providing portfolio management service.

Is it required for the investors to open a Demat account to access PMS services?

Yes. An investor needs to open a Demat account in his or her own name for investment in listed securities.

Specify the kinds of reports which the client can expect from the portfolio manager?

The portfolio manager shall furnish a report to the investor or the client as mentioned in the contract but should not exceed a period of six months.

The report shall contain-

• The composition and also the worth of the portfolio, description of security along with the number and variety as well as the amount of each security held in the portfolio, money balance and the total value of the portfolio as on the date of the report.
• Deals undertaken throughout the period of report incorporating date of the transaction as well as details of sales and purchase.
• Expenses undertaken in managing the portfolio of the client
• Details of risk predicted by the portfolio manager and also the risk relating to the securities suggested by the portfolio manager for investment or withdrawal.

The client has the right to get the details of his portfolio from the portfolio managers. Hence, the portfolio manager shall furnish to the client documents as well as information pertaining to the management of a portfolio.

What is the mechanism for disclosure of the portfolio managers to their clients?

A Disclosure Statement is provided by the portfolio manager to the clients at least two days before entering into an agreement with the client. The Disclosure Statement incorporates the amount and manner of fees payable by the investor or client for every activity, risks inherent in the portfolio, full disclosures in respect of transactions with connected parties, audited financial statements for the preceding three years. The SEBI is not involved in any way regarding the approval or disapproval of the Disclosure Statement.

Is the approval of SEBI required for any of the services offered by the portfolio manager?

No. SEBI doesn’t approve any of the services provided by the portfolio manager. The conditions mentioned in the Disclosure Statement and the consensus between the portfolio manager and the client are binding and the investor should invest based on those terms and conditions.

Is the Disclosure document of the portfolio manager approved by SEBI?

No. SEBI doesn’t approve or disapprove the Disclosure Document; neither does it validate the correctness or adequacy of the contents of the Disclosure Document.

Is early withdrawal of funds by an investor permissible?

The funds can be withdrawn any time before the contract matures. The agreement between the portfolio manager and the client sets out the terms of premature withdrawal.

Can a portfolio manager impose a lock-in on the investor?

No; although the portfolio manager can charge separate fees from the client for exiting before the maturity date, as mentioned in the agreement.

Can a portfolio manager provide a guaranteed return to the investor?

No. The portfolio manager cannot promise a guaranteed return to the investors.

Criterion on which the performance of the portfolio manager is calculated?

The performance of a discretionary portfolio manager is calculated by applying the weighted average technique taking every individual class of investments for the forthwith preceding three years and in such cases, the performance indicator is additionally disclosed.

How would the investors redress their complaints?

In the Disclosure Statement, the investors would find the name, address and contact number of the investor relation officer of the portfolio manager. Investors can also address the complaint to SEBI. On receipt of complaints, SEBI takes forward the matter to the involved portfolio manager and follows up with them.

Some of the best PMS in India:

1. Motilal Oswal PMS- It is found that the Motilal Oswal broking house provides both discretionary and non-discretionary services. The maximum return for the last 5 years is 33 percent. They have the highest number of clients because they have been providing service for the last 35 years.
2. Kotak PMS- The maximum return for the last 5 years is 35 percent.
3. Ask PMS- The company generally looks into the Multi-Cap strategy. The maximum return for the last 5 years is 18 percent.