Guidelines applicable to portfolio managers as prescribed by SEBI
A portfolio manager advises his client on the management or administration of his investment portfolio. He may either be a discretionary or non-discretionary portfolio manager. A discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client. A non-discretionary portfolio manager manages the funds according to the directions of the client.
An applicant for registration or renewal of registration as a portfolio manager is required to pay a non-refundable application fee of Rs 1 lakh. Every portfolio manager is required to pay a sum of Rs 10 lakhs as registration fee at the time of grant of certificate of registration by the SEBI.
SEBI takes into account all matters which it deems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, equipment and the manpower to effectively discharge the activities of a portfolio manager. The principal officer of the applicant should have professional qualifications in finance, law, and accountancy or business management from an institution recognized by the Government.
The applicant should have in its employment at least two persons who, between them, should have at least five years' experience as portfolio managers, stock brokers or investment managers. The applicant has to fulfill the capital adequacy requirements, etc. The portfolio manager is required to have a minimum net worth of Rs 50 lakhs. The certificate of registration by SEBI remains valid for three years.
The portfolio manager, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enters into an agreement in writing with the client, clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations as specified in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.
The SEBI (Portfolio Managers) Regulations, 1993, have not prescribed any scale of fee to be charged by the portfolio managers. However, the regulations provide that the portfolio manager can charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount, a return-based fee or a combination of both. The portfolio manager should take specific prior permission from the client for charging such fees for each service rendered.
A portfolio manager is required to accept funds or securities having a minimum worth of Rs 5 lakhs from the client while opening an account for the purpose of rendering portfolio management services.
A portfolio manager is permitted to invest in derivatives, including transactions for hedging and portfolio rebalancing, through a recognized stock exchange. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the portfolio in derivatives should not exceed the portfolio's funds placed with the portfolio manager and the portfolio manager should basically invest and not borrow on behalf of his clients.
The portfolio manager provides to the client the disclosure document at least two days prior to entering into an agreement with the client. The disclosure document, inter alia, contains the quantum and manner of payment of fees payable by the client for each service rendered by the portfolio manager, portfolio risks, complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.
A portfolio manager advises his client on the management or administration of his investment portfolio. He may either be a discretionary or non-discretionary portfolio manager. A discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client. A non-discretionary portfolio manager manages the funds according to the directions of the client.
An applicant for registration or renewal of registration as a portfolio manager is required to pay a non-refundable application fee of Rs 1 lakh. Every portfolio manager is required to pay a sum of Rs 10 lakhs as registration fee at the time of grant of certificate of registration by the SEBI.
SEBI takes into account all matters which it deems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, equipment and the manpower to effectively discharge the activities of a portfolio manager. The principal officer of the applicant should have professional qualifications in finance, law, and accountancy or business management from an institution recognized by the Government.
The applicant should have in its employment at least two persons who, between them, should have at least five years' experience as portfolio managers, stock brokers or investment managers. The applicant has to fulfill the capital adequacy requirements, etc. The portfolio manager is required to have a minimum net worth of Rs 50 lakhs. The certificate of registration by SEBI remains valid for three years.
The portfolio manager, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enters into an agreement in writing with the client, clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations as specified in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.
The SEBI (Portfolio Managers) Regulations, 1993, have not prescribed any scale of fee to be charged by the portfolio managers. However, the regulations provide that the portfolio manager can charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount, a return-based fee or a combination of both. The portfolio manager should take specific prior permission from the client for charging such fees for each service rendered.
A portfolio manager is required to accept funds or securities having a minimum worth of Rs 5 lakhs from the client while opening an account for the purpose of rendering portfolio management services.
A portfolio manager is permitted to invest in derivatives, including transactions for hedging and portfolio rebalancing, through a recognized stock exchange. However, leveraging of portfolio is not permitted in respect of investment in derivatives. The total exposure of the portfolio in derivatives should not exceed the portfolio's funds placed with the portfolio manager and the portfolio manager should basically invest and not borrow on behalf of his clients.
The portfolio manager provides to the client the disclosure document at least two days prior to entering into an agreement with the client. The disclosure document, inter alia, contains the quantum and manner of payment of fees payable by the client for each service rendered by the portfolio manager, portfolio risks, complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard, the performance of the portfolio manager and the audited financial statements of the portfolio manager for the immediately preceding three years.
