Text read out of this file
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SECURITIES AND EXCHANGE BOARD OF INDIA
(PORTFOLIO MANAGERS) REGULATIONS, 1993
CONTENTS
CHAPTER I: PRELIMINARY
1.
Short title and commencement
2.
Definitions
CHAPTER II: REGISTRATION OF PORTFOLIO MANAGERS
3.
Registration as portfolio manager
3A.
Application for grant of certificate
4.
Application to conform to the requirements
5.
Furnishing of further information, clarification, and personal
representation
6.
Consideration of application
6A.
Criteria for fit and proper person
7.
Capital adequacy requirement
8.
Procedure for registration
9.
Renewal of certificate
9A.
Conditions of registration
10.
Procedure where registration is not granted
11.
Effect of refusal to grant certificate
12.
Payment of fees, and the consequences of failure to pay fees
CHAPTER III: GENERAL OBLIGATIONS AND RESPONSIBILITIES
13.
Code of Conduct
14.
Contract with clients and disclosures
15.
General responsibilities of a portfolio manager
16.
Investment of clients' moneys and management of clients’
portfolio of securities
16A. Foreign institutional investors and sub-accounts availing
portfolio management services
16B. Appointment of custodian
17.
Maintenance of books of accounts, records, etc.
18.
Submission of half-yearly results
19.
Maintenance of books of accounts, records and other
documents
20.
Accounts and audit
21.
Reports to be furnished to the client
22.
Report on steps taken on Auditor's report
23.
Disclosures to the Board
23A. Appointment of compliance officer
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CHAPTER IV: INSPECTION AND DISCIPLINARY PROCEEDINGS
24. Right of inspection by the Board
25. Notice before inspection
26. Obligations of Portfolio Manager on inspection
27. Submission of report to the Board
28. Action on inspection or investigation report
29. Appointment of Auditor
CHAPTER V: PROCEDURE FOR ACTION IN CASE OF DEFAULT
30. Liability for action in case of default
[31. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
[32. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
[33. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
[34. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
[35. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry
Officer and Imposing Penalty) Regulations, 2002]
[36. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
[38. Omitted by the Securities (Procedure for Holding Enquiry by
Enquiry Officer and Imposing Penalty) Regulations, 2002]
CHAPTER VI: MISCELLANEOUS
39. Power of the Board to issue clarification
SCHEDULE I: Forms
FORM A:
Application for Grant of Certificate/Renewal of
Certificate
FORM B: Certificate of Registration
FORM C: Details of Portfolio Manager
SCHEDULE II: Fees
SCHEDULE III: Code of Conduct
SCHEDULE IV: Contents of Agreement between the Portfolio
Manager and his Clients
SCHEDULE V: Disclosure Document
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THE GAZETTE OF INDIA
EXTRAORDINARY
PART III - SECTION 4
PUBLISHED BY AUTHORITY
NOTIFICATION
Bombay, the 7th January, 1993
SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO
MANAGERS) REGULATIONS, 1993
SEBI/LE/92/III.─In exercise of the powers conferred by section 30 of the
Securities and Exchange Board of India Act, 1992 (15 of 1992), the
Securities and Exchange Board of India hereby makes the following
regulations, namely:─
CHAPTER I
PRELIMINARY
1. Short title and commencement.─(1) These regulations may be called
the Securities and Exchange Board of India (Portfolio Managers)
Regulations, 1993.
(2) They shall come into force on the date1 of their publication in the
Official Gazette.
2. Definitions.─ In these regulations, unless the context otherwise
requires,─
1 7th January, 1993, vide S.O. No. SEBI/LE/92/III, dated 7-01-1993, Gazette of India, Extraordinary, 1993,
Part III, section 4.
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1[(a)
“Act” means the Securities and Exchange Board of India Act,
1992 (15 of 1992);]
2[(aa)] 3[* * *]
4[(aa) “body corporate” shall have the meaning assigned to it in or
under clause (7) of section 2 of the Companies Act, 1956 (1 of
1956);
(ab) “certificate” means a certificate of registration issued by the
Board;
(ac) “change of status or constitution” in relation to a portfolio
manager─
(i)
means any change in its status or constitution of
whatsoever nature; and
(ii)
without prejudice to generality of sub-clause (i), includes–
(A) amalgamation, demerger, consolidation or any other
kind of corporate restructuring falling within the scope
of section 391 of the Companies Act, 1956 (1 of 1956)
or the corresponding provision of any other law for the
time being in force;
(B) change in its managing director or whole-time
director; and
(C) any change in control over the body corporate;
1 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 7-9-2006.
2 Clause (a) renumbered as (aa) by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f.
11-10-2002.
3 Omitted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002, w.e.f. 27-9-2002. Prior to omission, clause (aa) read as under:
“(aa) “Enquiry Officer" means any officer of the Board, or any other person, having experience in dealing
with the problems relating to the securities market, who is authorized by the Board under Chapter V;”
4 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
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(ad) “change in control”, in relation to a portfolio manager being a
body corporate, means:─
(i)
if its shares are listed on any recognized stock exchange,
change in control within the meaning of regulation 12 of
the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997;
(ii)
in any other case, change in the controlling interest in the
body corporate;
Explanation.─ For the purpose of sub-clause (ii), the expression
“controlling interest” means an interest, whether direct or
indirect, to the extent of at least fifty one percent of voting rights
in the body corporate;]
1[(ae)] “chartered accountant" means a chartered accountant as
defined in clause (b) of sub-section (1) of section 2 of the
Chartered Accountants Act, 1949 (38 of 1949) and who has
obtained a certificate of practice under sub-section (1) of section
6 of that Act;]
2[(af) “discretionary portfolio manager” means a portfolio manager who
exercises or may, under a contract relating to portfolio
management, exercise any degree of discretion as to the
investments or management of the portfolio of securities or the
funds of the client, as the case may be;]
(b) "form" means a form specified in Schedule I;
(c) "inspecting authority" means one or more persons appointed by
the Board to exercise powers conferred under Chapter IV;
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002, as clause
(a) renumbered as clause (ae) by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006,
w.e.f. 07-09-2006.
2 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
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1[(ca) “portfolio” means the total holdings of securities belonging to
any person;
(cb) “portfolio manager” means any person who pursuant to a
contract or arrangement with a client, advises or directs or
undertakes on behalf of the client (whether as a discretionary
portfolio
manager
or
otherwise)
the
management
or
administration of a portfolio of securities or the funds of the
client, as the case may be;]
2[(d) “principal officer” means an employee of the portfolio manager
who has been designated as such by the portfolio manager;]
[(e)] 3[* * *]
4[(ea) “securities lending” means the securities lending as per the
Securities Lending Scheme, 1997 specified by the Board;]
(f) Words and expressions used and not defined in these
regulations but defined in the Act 5[* * *] shall have the
meanings respectively assigned to them in the Act 6[* * *].
1 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
2 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2006, w.e.f. 05-07-2006. Prior to
substitution, clause (d) as substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002,
w.e.f. 11-10-2002 read as under:
"(d) “principal officer" means a director of the portfolio manager, who is responsible for the activities
of portfolio management and has been designated as principal officer by the portfolio manager;”
3 Omitted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006 w.e.f. 07-09-2006.
Prior to omission, clause (e) read as under:
“(e) "rules" means Securities and Exchange Board of India (Portfolio Managers) Rules, 1992;”
4 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
5 The words “and the rules” omitted by the SEBI (Portfolio Managers) (Second Amendment) Regulations,
2006, w.e.f. 07-09-2006.
6 The words “or the rules, as the case may be” omitted, ibid.
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CHAPTER II
REGISTRATION OF PORTFOLIO MANAGERS
1[3. Registration as portfolio manager.─ No person shall act as
portfolio manager unless he holds a certificate granted by the Board under
these regulations:
Provided that a merchant banker acting as a portfolio manager
immediately before commencement of the Securities and Exchange Board
of India (Portfolio Managers) (Second Amendment) Regulations, 2006
may continue to do so for a period of six months from such
commencement or, if he has made an application for registration under
these regulations within the said period of six months, till the disposal of
such application.]
2[3A. Application for grant of certificate.─3[(1) An application by a
portfolio manager for the grant of a certificate shall be made to the Board
in Form A and shall be accompanied by a non-refundable application fee,
as specified in clause (1) of Schedule II, to be paid in the manner specified
in Part B thereof.]
(2) Notwithstanding anything contained in sub-regulation (1), any
application made by a portfolio manager prior to coming into force of these
regulations containing such particulars or as near thereto as mentioned in
Form A shall be treated as an application made in pursuance of sub-
regulation (1) and dealt with accordingly.]
1 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
2 Regulation „3‟ renumbered as „3A‟ by the SEBI (Portfolio Managers) (Second Amendment) Regulations,
2006, w.e.f. 07-09-2006.
3 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2004, w.e.f. 27-05-2004. Prior to
substitution, sub-regulation (1) read as under:
“(1) An application by a portfolio manager for a grant of a certificate shall be made to the Board in
Form A.”
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4. Application to conform to the requirements.─ Subject to the
provisions of sub-regulation (2) of regulation 3, any application, which is
not complete in all respects and does not conform to the instructions
specified in the form, shall be rejected:
Provided that, before rejecting any such application, the applicant shall be
given an opportunity to remove within the time specified such objections
as may be indicated by the Board.
5. Furnishing of further information, clarification and personal
representation.─(1) The Board may require the applicant to furnish
further information or clarification regarding matters relevant to his activity
of a portfolio manager for the purposes of disposal of the application.
(2) The applicant or, its principal officer shall, if so required, appear
before the Board for personal representation.
1[6. Consideration of application.─(1) For considering the grant of
certificate of registration to the applicant, the Board shall take into account
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, regulation 6 read as under:
“6. Consideration of application.─ The Board shall take into account for considering the grant of a
certificate, all matters which are relevant to the activities relating to portfolio manager and in particular
whether the applicant complies with the following requirements namely: -
(a) the applicant has the necessary infrastructure like adequate office space, equipments, and
manpower to effectively discharge his activities;
(b) the applicant has in his employment minimum of two persons who have the experience to
conduct the business of portfolio manager;
(c) a person, directly or indirectly connected with the applicant has not been granted registration by
the Board in case of the applicant being a body corporate;
Explanation.─ For the purposes of this clause the expression "directly or indirectly connected"
means any person being an associate, subsidiary, inter-connected or group company of the
applicant in case of the applicant being a body corporate;
(d) the applicant fulfils the capital adequacy requirements specified in regulation 7;
(e) the applicant, his partner, director or principal officer is not involved in any litigation connected
with the securities market and which has an adverse bearing on the business of the applicant;
(f) the applicant, his director, partner or principal officer has not at any time been convicted for any
offence involving moral turpitude or has been found guilty of any economic offence;
(g) the applicant has the professional qualification from an institution recognized by the
Government in finance, law, accountancy or business management;
gg) the applicant is a fit and proper person; [Clause (gg) inserted by the SEBI (Portfolio Mangers)
(Amendment) Regulations, 1998, w.e.f. 05-01-1998.]
(h) grant of certificate to the applicant is in the interest of investors.
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all matters which it deems relevant to the activities relating to portfolio
management.
(2) Without prejudice to the generality of the foregoing provisions, the
Board shall consider whether-
(a) the applicant is a body corporate;
(b) the applicant has the necessary infrastructure like adequate
office space, equipments and the manpower to effectively
discharge the activities of a portfolio manager;
1[(c) the principal officer of the applicant has either–
(i)
a professional qualification in finance, law, accountancy or
business management from a university or an institution
recognized by the Central Government or any State
Government or a foreign university; or
(ii) an experience of at least ten years in related activities in
the securities market including in a portfolio manager,
stock broker or as a fund manager.]
(d) the applicant has in its employment minimum of two persons
who, between them, have at least five years experience 2[in
related activities in portfolio management or stock broking or
investment management] or in the areas related to fund
management;
1 Substituted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 05-07-2006.
Prior to substitution, clause (c) read as under:
“(c) the principal officer of the applicant has the professional qualifications in finance, law,
accountancy or business management from an institution recognized by the Government;”
2 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008 for the
words “as portfolio manager or stock broker or investment manager.”
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(e) any previous application for grant of certificate made by any
person directly or indirectly connected with the applicant has
been rejected by the Board;
(f) any disciplinary action has been taken by the Board against a
person directly or indirectly connected with the applicant under
the Act or the Rules or the Regulations made thereunder.
Explanation.─ For the purposes of sub-clauses (e) and (f), the
expression "person directly or indirectly connected" means
any person being an associate, subsidiary, inter-connected
company or a company under the same management within
the meaning of section 370(1B) of the Companies Act,1956 or
in the same group;
(g) the applicant fulfills the capital adequacy requirements
specified in regulation 7;
(h) the applicant, its director, principal officer or the employee as
specified in clause (d) is involved in any litigation connected
with the securities market which has an adverse bearing on
the business of the applicant;
(i)
the applicant, its director, principal officer or the employee as
specified in clause (d) has at any time been convicted for any
offence involving moral turpitude or has been found guilty of
any economic offence;
(j) 1[the applicant is a fit and proper person;]
(k) grant of certificate to the applicant is in the interest of
investors.]
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 1998, w.e.f. 05-01-1998.
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1[6A. Criteria for fit and proper person.─ For the purposes of
determining whether an applicant or the portfolio manager is a fit and
proper person the Board may take into account the criteria specified in
Schedule II of the Securities and Exchange Board of India (Intermediaries)
Regulations, 2008.]
2[7.
Capital
Adequacy
Requirement.─The
capital
adequacy
requirement referred to in clause (g) of regulation 6 shall not be less than
the networth of 3[two crore rupees]:
4[Provided that a portfolio manager, who was granted a certificate
under these regulations prior to the commencement of the Securities and
Exchange Board of India (Portfolio Managers) (Amendment) Regulations,
2008, shall raise its networth to not less than one crore rupees within six
months from such commencement and to not less than two crore rupees
within six months thereafter:
Provided further that the portfolio manager shall fulfill capital adequacy
requirement under these regulations, separately and independently, of
1 Substituted by the SEBI (Intermediaries) Regulations, 2008, w.e.f. 25-05-2008. Prior to substitution,
Regulation 6A, inserted by the SEBI (Criteria for fit and proper person) Regulations, 2004, read as under:
“6A. Applicability of Securities and Exchange Board of India (Criteria for fit and proper person)
Regulations, 2004.─The provisions of the Securities and Exchange Board of India (Criteria for fit and
proper person) Regulations, 2004 shall, as for as may be, apply to all applicants or the portfolio managers
under these regulations.”
2 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, regulation 7 read as under:
“7. Capital Adequacy requirement.─ The capital adequacy requirement referred to in sub-regulation
(d) of regulation 6 shall not be less than the networth of Rupees fifty lacs of the person making the
application;
Explanation.─For the purposes of this regulation, "networth" means in the case of an applicant which
is a partnership firm or a body corporate, the value of a capital contributed to the business of such firm or
the paid up equity capital of such body corporate and plus free reserves as the case may be at the time of
making application under sub-regulation (1) of regulation 3.”
3 Words “fifty lacs rupees” substituted for the words “two crore rupees” by the SEBI (Portfolio Managers)
(Amendment) Regulations, 2008, w.e.f. 11-08-2008.
4 Inserted, ibid.
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capital adequacy requirements, if any, for each activity undertaken by it
under the relevant regulations.]
Explanation.─ For the purposes of this regulation, "networth" means the
aggregate value of paid up equity capital plus free reserves (excluding
reserves created out of revaluation) reduced by the aggregate value of
accumulated losses and deferred expenditure not written off, including
miscellaneous expenses not written off.]
8. Procedure for registration.─ The Board on being satisfied that the
applicant fulfils the requirements specified in regulation 6 shall send an
intimation to the applicant and on receipt of the payment of 1[registration]
fees as specified in 2[clause (1A) of] Schedule II then grant a certificate in
Form B.
9. Renewal of certificate.─(1) A portfolio manager may, three months
before the expiry of the validity of the certificate, make an application for
renewal in Form A 3[along with fees specified in clause 1 of Schedule II.]
(2) The application for renewal, under sub-regulation (1) shall be dealt
with in the same manner as if it were an application for grant of a
certificate made under regulation 3.
4[(3) The Board, on being satisfied that the applicant fulfills the
requirements specified in regulation 6, shall send an intimation to the
applicant and on receipt of payment of renewal fees as specified in
paragraph 2 of Schedule II, grant a renewal of the certificate.]
1 The word "registration", inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2004,
w.e.f. 27-5-2004.
2 The words "clause (1A) of" inserted, ibid.
3 The words “along with fees specified in clause 1 of Schedule II” inserted by the SEBI (Portfolio
Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-9-2006.
4 Substituted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
Prior to substitution, sub-regulation (3) read as under:
“(3) The Board on being satisfied that the applicant fulfils the requirements specified in regulation 6
for renewal of certificate shall grant a certificate in Form B and send an intimation to the applicant.”
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1[9A. Conditions of registration.─(1) Any registration granted under
regulation 8 or any renewal granted under regulation 9 shall be subject to
the following conditions, namely:-
(a) where the portfolio manager proposes to change its status or
constitution, it shall obtain prior approval of the Board for
continuing to act as such after the change;
(b) it shall pay the fees for registration or renewal, as the case
may be, in the manner provided in these regulations;
(c)
it shall take adequate steps for redressal of grievances of the
investors within one month of the date of the receipt of the
complaint and keep the Board informed about the number,
nature and other particulars of the complaints received;
(d) it shall maintain capital adequacy requirements specified in
regulation 7 at all times during the period of the certificate or
renewal thereof;
(e) it shall abide by the regulations made under the Act in respect
of the activities carried on by it as portfolio manager.
(2) Nothing contained in clause (a) of sub-regulation (1) shall affect the
obligation to obtain a fresh registration under section 12 of the Act in
cases where it is applicable.
9B. Period of validity of certificate.─ The certificate of registration
granted under regulation 8 and its renewal granted under regulation 9,
shall be valid for a period of three years from the date of its issue to the
applicant.]
10. Procedure where registration is not granted.─(1) Where an
application for grant of a certificate under regulation 3 or of renewal under
1 Inserted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 07-09-2006.
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regulation 9 does not satisfy the requirements set out in regulation 6, the
Board may reject the application, after giving an opportunity of being
heard.
(2) The refusal to grant registration shall be communicated by the
Board within thirty days of such refusal to the applicant stating therein the
grounds on which the application has been rejected.
(3) Any applicant may, being aggrieved by the decision of the Board
under sub-regulation (1), apply within a period of thirty days from the date
of receipt of such intimation, to the Board for reconsideration of its
decision.
(4) The Board shall reconsider an application made under sub-
regulation (3) and communicate its decision as soon as possible in writing
to the applicant.
11. Effect of refusal to grant certificate.─ Any portfolio manager
whose application for a certificate has been refused by the Board shall on
and from the date of the receipt of the communication under sub-
regulation (2) of regulation 10 cease to carry on any activity as portfolio
manager.
12. Payment of fees, and the consequences of failure to pay
fees.─(1) Every applicant eligible for grant of a certificate shall pay fees
in such manner and within the period specified in Schedule II.
(2) Where a portfolio manager fails to pay the fees as provided in
Schedule II, the Board may suspend the certificate, whereupon the
portfolio manager shall forthwith cease to carry on the activity as a
portfolio manager for the period during which the suspension subsists.
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CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES
13. Code of Conduct.─ Every portfolio manager shall abide by the
Code of Conduct as specified in Schedule III.
1[14. Contract with clients and disclosures.─ (1) (a) The portfolio
manager shall, before taking up an assignment of management of funds
or portfolio of securities on behalf of a client, enter into an agreement in
writing with such client clearly defining the inter se relationship, and setting
out their mutual rights, liabilities and obligations relating to management of
funds or portfolio of securities containing the details as specified in
Schedule IV.
(b) The agreement between the portfolio manager and the client
shall, inter alia, contain:
(i)
the investment objectives and the services to be
provided;
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, regulation 14 read as under:
“14. Contract with clients.─(1) (a) Every portfolio manager shall before taking up an assignment of
management of portfolio on behalf of a client, enter into an agreement with such client clearly defining the
inter-se relationship, and setting out their mutual rights, liabilities and obligations relating to management
of the portfolio of the client.
(b) The contract shall, inter alia, contain; -
(i) the investment objectives and the services to be provided;
(ii) areas of investment and restrictions, if any, imposed by the client with regard to investment in a
particular company or industry;
(iii) attendant risks involved in the management of the portfolio;
(iv) period of the contract and provision of early termination, if any;
(v) amount to be invested;
(vi) procedure of settling client's account including form of repayment on maturity or early termination of
contract;
(vii) fees payable to the portfolio manager;
(viii)custody of securities.
(2) The funds of all clients shall be placed by the portfolio manager in a separate account to be
maintained by him in a scheduled commercial bank.
Explanation.─For the purposes of this sub-regulation "scheduled bank" means any bank included in
the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934);
(3) The portfolio manager shall charge an agreed fee from the client for rendering portfolio
management services without guaranteeing or assuring, either directly or indirectly any return and such fee
shall be independent of the return to the client and shall not be on a return sharing basis."
Page 16 of 61
(ii) areas of investment and restrictions, if any, imposed by
the client with regard to the investment in a particular
company or industry;
(iii) type of instruments and proportion of exposure;
(iv) tenure of portfolio investments;
(v) terms for early withdrawal of funds or securities by the
clients;
(vi) attendant risks involved in the management of the
portfolio;
(vii) period of the contract and provision of early termination,
if any;
(viii) amount to be invested subject to the restrictions
provided under these regulations;
(ix) procedure of settling client's account including form of
repayment on maturity or early termination of contract;
(x) fees payable to the portfolio manager;
(xi) the quantum and manner of fees payable by the client
for each activity for which service is rendered by the
portfolio manager directly or indirectly (where such
service is out sourced);
(xii) custody of securities;
(xiii) in case of a discretionary portfolio manager a condition
that the liability of a client shall not exceed his
investment with the portfolio manager;
Page 17 of 61
(xiv) the terms of accounts and audit and furnishing of the
reports to the clients as per the provisions of these
regulations; and
(xv) other terms of portfolio investment subject to these
regulations.
(2) (a)
The portfolio manager shall provide to the client, the
Disclosure Document as specified in Schedule V, along with
a certificate in Form C as specified in Schedule I, at least
two days prior to entering into an agreement with the client
as referred to in sub-regulation (1).
(b) The Disclosure Document, shall inter alia contain the
following─
(i) the quantum and manner of payment of fees payable by
the client for each activity for which service is rendered
by the portfolio manager directly or indirectly (where such
service is out sourced);
(ii) portfolio risks;
(iii) 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;
(iv) the performance of the portfolio manager:
Provided that the performance of a discretionary
portfolio manager shall be calculated using weighted
average method taking each individual category of
investments for the immediately preceding three years
Page 18 of 61
and in such cases performance indicators shall also be
disclosed;
(v) the audited financial statements of the portfolio manager
for the immediately preceding three years.
(c) The contents of the Disclosure Document shall be certified by
an independent chartered accountant.
(d) The portfolio manager shall file with the Board, a copy of the
Disclosure Document before it is circulated or issued to any
person and every six months thereafter or whenever any
material change is effected therein whichever is earlier,
along with the certificate in Form C as specified in Schedule
I.
(3) (a)
The portfolio manager shall charge an agreed fee from the
clients for rendering portfolio management services without
guaranteeing or assuring, either directly or indirectly, any
return and the fee so charged may be a fixed fee or a return
based fee or a combination of both.
(b) The portfolio manager may, subject to the disclosure in terms
of the Disclosure Document and specific permission from the
client, charge such fees from the client for each activity for
which service is rendered by the portfolio manager directly or
indirectly (where such service is out sourced).]
15. General responsibilities of a Portfolio Manager.─(1) The
discretionary portfolio manager shall individually and independently
manage the funds of each client in accordance with the needs of the client
in a manner which does not partake character of a Mutual Fund, whereas
Page 19 of 61
the non-discretionary portfolio manager shall manage the funds in
accordance with the directions of the client.
1[(1A) The portfolio manager shall not accept from the client, funds or
securities worth less than 2[twenty five lacs] rupees.]
3[Provided that the minimum investment amount per client shall be
applicable for new clients and fresh investments by existing clients:
Provided further that existing investments of clients, as on date of
notification of Securities and Exchange Board of India (Portfolio
Managers) (Amendment) Regulations, 2012, may continue as such till
maturity of the investment.]
(2) The portfolio manager shall act in a fiduciary capacity with regard
to the client's funds.
4[(2A) The portfolio manager shall keep the funds of all clients in a
separate account to be maintained by it in a Scheduled Commercial Bank.
Explanation.─ For the purposes of this sub-regulation, the expression
„Scheduled Commercial Bank‟ means any bank included in the Second
Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).]
(3) The portfolio manager shall transact in securities within the
limitation placed by the client himself with regard to dealing in securities
under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934).
(4) The portfolio manager shall not derive any direct or indirect benefit
out of the client's funds or securities.
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 Substituted by SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012.
3 Inserted, ibid.
4 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
Page 20 of 61
1[(4A) The portfolio manager shall not borrow funds or securities on
behalf of the client.]
2[(5) The portfolio manager shall not lend securities held on behalf of
clients to a third person except as provided under these regulations.]
(6) The portfolio manager shall ensure proper and timely handling of
complaints from his clients and take appropriate action immediately.
3[16. Investment of clients' moneys and management of clients'
portfolio of securities].─
(1) 4[(a) The money or securities accepted by the portfolio manager
shall not be invested or managed by the portfolio manager
except in terms of the agreement between the portfolio
manager and the client.]
(b) Any renewal of portfolio fund on maturity of the initial period
shall be deemed as a fresh placement 5[* * *].
6[(2) Notwithstanding anything contained in the agreement referred to
in regulation 14, the funds or securities can be withdrawn or taken back by
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 Substituted, ibid. Prior to substitution, sub-regulation (5) read as under:
“(5) The portfolio manager shall not pledge or give on loan securities held on behalf of clients to a third person
without obtaining a written permission from his client.”
3 Substituted for "Investment of clients‟ moneys‟", by the SEBI (Portfolio Managers) (Amendment)
Regulations, 2002, w.e.f. 11-10-2002.
4 Substituted, ibid. Prior to substitution, clause (a) read as under:
"(a) The portfolio manager shall not accept money or securities from his client for a period of less than one year:
Provided that in the case of placement of funds for portfolio management by the same client on more than one
occasion or on a continual basis, each placement shall be for a minimum period of one year."
5 The words “and shall be for a minimum period of one year" omitted by the SEBI (Portfolio Managers)
(Amendment) Regulations, 2002, w.e.f. 11-10-2002.
6 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, sub-regulation (2) read as under:
"(2) Notwithstanding anything contained in the agreement between a portfolio manager and his client, referred to
in regulation 14 hereof, the, portfolio funds can be withdrawn or taken back by portfolio client at his risk before the
maturity date of the contract under the following circumstances, namely:-
(a) Voluntary or compulsory, termination of Portfolio management services by the Portfolio manager;
(b) suspension or termination of registration of Portfolio manager by the Board;
(c) bankruptcy or liquidation in case the portfolio manager is a body corporate;
(d) permanent disability, lunacy or insolvency in case the portfolio manager is an individual;"
Page 21 of 61
the client before the maturity of the contract under the following
circumstances, namely-
(a) voluntary or compulsory termination of portfolio management
services by the portfolio manager or the client.
(b) suspension or cancellation of the certificate of registration of
the portfolio manager by the Board.
(c) bankruptcy or liquidation of the portfolio manager.]
(3) The portfolio manager shall invest funds of his clients in money
market instruments 1[or derivatives] or as specified in the contract:
2[Provided that leveraging of portfolio shall not be permitted in respect
of investment in derivatives:]
Provided 3[further] that the portfolio manager shall not deploy the
clients' funds in bill discounting, badla financing or for the purpose of
lending or placement with corporate or non-corporate bodies.
Explanation.─ For the purposes of this sub-regulation: "money market
instruments" includes commercial paper, trade bill, treasury bills,
certificate of deposit and usance bills.
4[(4) The portfolio manager shall not while dealing with clients‟ funds
indulge in speculative transactions that is, he shall not enter into any
transaction for purchase or sale of any security which is periodically or
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 Inserted, ibid.
3 Inserted, ibid.
4 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, sub regulation (4) read as under:
"(4) The portfolio manager shall not while dealing with clients‟ funds indulge in speculative
transactions, that is, he shall not enter into any transaction for purchase or sale of any security in which
transaction is periodically or ultimately settled otherwise than by actual delivery or transfer of security.
The portfolio manager may enter into transactions on behalf of client for the specific purpose of meeting
margin requirements only if the contract so provides and the client is made aware of the attendant risks of
such transactions. "
Page 22 of 61
ultimately settled otherwise than by actual delivery or transfer of security
except the transactions in derivatives.]
(5) The portfolio manager shall, ordinarily purchase or sell securities
separately for each client. However, in the event of aggregation of
purchases or sales for economy of scale, inter se allocation shall be done
on a pro rata basis and at weighted average price of the day's
transactions. The portfolio manager shall not keep any open position in
respect of allocation of sales or purchases effected in a day.
(6) Any transaction of purchase or sale including that between the
portfolio manager's own accounts and client's accounts or between two
clients' accounts shall be at the prevailing market price.
(7) The portfolio manager shall segregate each clients' funds and
portfolio of securities and keep them separately from his own funds and
securities and be responsible for safekeeping of clients' funds and
securities.
1[(8) The portfolio manager shall not hold the listed securities 2[or
unlisted securities], belonging to the portfolio account, in its own name on
behalf of its clients either by virtue of contract with clients or otherwise:
Provided that any portfolio manager holding the listed securities
belonging to the portfolio account in its own name on behalf of its clients
on the date of commencement of the Securities and Exchange Board of
India (Portfolio Managers) (Amendment) Regulations, 2008 shall
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
substitution, sub-regulation (8) read as follows:
“(8) The portfolio manager may hold the securities belonging to the portfolio account in [its] own
name on behalf of [its] clients only if the contract so provided and in such an event the record of the
portfolio manager and [its] report to the client should clearly indicate that the securities are held by [it] on
behalf of the portfolio account.”
[The words "his and "him" were substituted by "its" and "it" respectively, by the SEBI (Portfolio
Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.]
2 Inserted by SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012.
Page 23 of 61
segregate each clients‟ listed securities and keep them separately within
six months from such commencement:
Provided further that the Board may in the interest of investors or for
the development of securities market, on an application made in this
behalf by a portfolio manager with respect to any specific investment
existing on the date of commencement of the Securities and Exchange
Board of India (Portfolio Managers) (Amendment) Regulations, 2008, relax
the strict enforcement of this regulation:]
1[Provided further that the portfolio manager shall segregate each client‟s
holding in unlisted securities in separate accounts in respect of investment
by new clients and fresh investments by existing clients:
Provided further that existing investments in unlisted securities of clients,
as on date of notification of Securities and Exchange Board of India
(Portfolio Managers) (Amendment) Regulations, 2012 may continue as
such till maturity of investment.]
2[(9) The portfolio manager may, subject to authorization by the client
in writing, participate in securities lending.]
3[16A. Foreign Institutional Investor and sub-accounts availing
portfolio management services.─ 4[Foreign portfolio investors] may avail
of the services of a portfolio manager.]
1 Inserted by SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012.
2 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
3 Substituted by the SEBI (Portfolio Managers) (Third Amendment) Regulations, 2006, w.e.f. 30-11-2006.
Prior to substitution, regulation 16A inserted by SEBI (Portfolio Managers) (Amendment) Regulations,
2000, w.e,f. 22-02-2000 read as under:
“16A. That the portfolio manager may manage funds raised or collected or brought from outside India
in accordance with Securities and Exchange Board of India (Foreign Institutional Investors) Regulations,
1995.”
4 Substituted for "Foreign institutional investors and sub-accounts registered with the Board" by the SEBI
(Foreign Portfolio Investors) Regulations, 2014, w.e.f. 7-1-2014.
Page 24 of 61
1[16B. Appointment of custodian.─(1) Every portfolio manager shall
appoint a custodian in respect of securities managed or administered by it.
(2) Nothing contained in this regulation shall apply to a portfolio
manager–
(a) who has total assets under management of value less than
five hundred crore rupees; or
(b) who performs purely advisory functions.]
17. Maintenance of books of accounts, records, etc.─(1) Every
portfolio manager shall keep and maintain the following books of
accounts, records and documents namely:-
(a) a copy of balance sheet at the end of each accounting
period;
(b) a copy of the profit and loss account for each accounting
period;
(c) a copy of the auditors report on the accounts for each
accounting period;
(d) a statement of financial position and;
(e) records in support of every investment transaction or
recommendation which will indicate the data, facts and
opinion leading to that investment decision.
(2) Every portfolio manager shall intimate to the Board the place where
the books of accounts, records and documents are maintained.
(3) Without prejudice to sub-regulation (1), every portfolio manager
shall, after the end of each accounting period, furnish to the Board copies
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2006, w.e.f. 05-07-2006.
Page 25 of 61
of the balance sheet, profit and loss account and such other documents as
are mentioned in any of the regulations under this chapter for any other
preceding five accounting years when required by the Board.
18. Submission of half-yearly results.─ Every portfolio manager
shall furnish to the Board half-yearly-unaudited financial results when
required by the Board with a view to monitor the capital adequacy of the
portfolio manager.
19. Maintenance of books of accounts, records and other
documents.─ The portfolio manager shall preserve the books of account
and other records and documents mentioned in any of the regulations
mentioned under this chapter for a minimum period of five years.
20. Accounts and audit.─
(1) (a) The portfolio manager shall maintain separate client-wise
accounts.
(b) The funds received from the clients, investments or
disinvestments and all the credits to the account of the client
like interest, dividend, bonus, or any other beneficial interest
received on the investment and debits, for expenses, if any,
shall be properly accounted for and details thereof shall be
properly reflected in the client's account.
(c) The tax deducted at source as required under the provisions
of the Income-Tax Act, 1961, (43 of 1961) shall be recorded in
the portfolio account.
(2) The books of account will be audited yearly by qualified auditor to
ensure that the portfolio manager has followed proper accounting methods
and procedures and that the portfolio manager has performed his duties in
Page 26 of 61
accordance with the law. A certificate to this effect shall, if so specified, be
submitted to the Board within six months of close of portfolio manager's
accounting period.
1[(3) The portfolio accounts of the portfolio manager shall be audited
annually by an independent chartered accountant and a copy of the
certificate issued by the chartered accountant shall be given to the client.
(4) The client may appoint a chartered accountant to audit the books
and accounts of the portfolio manager relating to his transactions and the
portfolio manager shall co-operate with such chartered accountant in
course of the audit.]
21. Reports to be furnished to the client.─(1) The portfolio manager
shall furnish periodically a report to the client, as agreed in the contract,
but not exceeding a period of six months 2[and as and when required by
the client] and such report shall contain the following details, namely:-
(a) the composition and the value of the portfolio, description of
security, number of securities, value of each security held in
the portfolio, cash balance and aggregate value of the
portfolio as on the date of report;
(b) transactions undertaken during the period of report including
date of transaction and details of purchases and sales;
(c) beneficial interest received during that period in respect of
interest, dividend, bonus shares, rights shares and
debentures;
(d) expenses incurred in managing the portfolio of the client;
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 Inserted, ibid.
Page 27 of 61
(e) details of risk foreseen by the portfolio manager and the risk
relating to the securities recommended by the portfolio
manager for investment or disinvestment.
1[(1A) The report referred to in sub-regulation (1) may be made
available on the website of the portfolio manager with restricted access to
each client.]
(2) The portfolio manager shall 2[in terms of the agreement with the
client] also furnish to the client documents and information relating only to
the management of a portfolio.
(3) On termination of the contract, the portfolio manager shall give a
detailed statement of accounts to the client and settle the account with the
client as agreed in the contract.
3[(4) The client shall have the right to obtain details of his portfolio from
the portfolio managers.]
22. Report on steps taken on Auditor's report.─Every portfolio
manager shall within two months from the date of the auditors report take
steps to rectify the deficiencies, made out in the auditors report.
23. Disclosures to the Board.─ A portfolio manager shall disclose to
the Board as and when required the following information namely:-
(i) particulars regarding the management of a portfolio;
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 Inserted, ibid.
3 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002. Prior to
substitution, sub regulation (4) read as under:
“(4) In the event of any dispute between the portfolio manager and his clients, the client shall have the
right to obtain details of his portfolio from the portfolio manager.”
Page 28 of 61
(ii) any change in the information or particulars previously
furnished, which have a bearing on the certificate granted to
him;
(iii) the names of the clients whose portfolio he has managed;
(iv) particulars relating to the capital adequacy requirement as
specified in regulation 7.
1[23A. Appointment of compliance officer.─(1) Every portfolio
manager shall appoint a compliance officer who shall be responsible for
monitoring the compliance of the Act, rules and regulations, notifications,
guidelines, instructions etc., issued by the Board or the Central
Government and for redressal of investors' grievances.
(2) The compliance officer shall immediately and independently report
to the Board any non-compliance observed by him.]
CHAPTER IV
INSPECTION AND DISCIPLINARY PROCEEDINGS
24. Right of inspection by the Board.─(1) The Board may appoint
one or more persons as inspecting authority to undertake the inspection of
the books of account, records and documents of the portfolio manager for
any of the purposes specified in sub-regulation (2).
(2) The purposes referred to in sub-regulation (1) may be as follows,
namely:-
1 Inserted by the SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001, w.e.f. 29-05-
2001.
Page 29 of 61
(a) to ensure that the books of account are being maintained in
the manner required;
(b) that the provisions of the Act, rules and regulations are being
complied with;
(c) to investigate into the complaints received from investors,
other portfolio managers or any other person on any matter
having a bearing on the activities of the portfolio manager;
and
(d) to investigate suo motu in the interest of securities business
or investors' interest into the affairs of the portfolio manager.
25. Notice before inspection.─(1) Before undertaking an inspection
under regulation 24, the Board shall give a reasonable notice to the
portfolio manager, for that purpose.
(2) Notwithstanding anything contained in sub-regulation (1), where the
Board is satisfied that in the interest of the investors no such notice should
be given, it may by an order in writing direct that the inspection of the
affairs of the portfolio manager be taken up without such notice.
(3) During the course of inspection the portfolio manager against whom
an inspection is being carried out shall be bound to discharge his
obligations as provided under regulation 26.
26. Obligations of Portfolio Manager on inspection.─(1) It shall be
the duty of every director, proprietor, partner, officer and employee of the
portfolio manager who is being inspected to produce to the inspecting
authority such books, accounts and other documents in his custody or
control and furnish him with the statements and information relating to his
Page 30 of 61
activities as a portfolio manager within such time as the inspecting
authority may require.
(2) The portfolio manager shall allow the inspecting authority to have a
reasonable access to the premises occupied by such portfolio manager or
by any other person, on his behalf and also extend reasonable facility for
examining any books, records, documents and computer data in the
possession of the portfolio manager or any such other person and also
provide copies of documents or other material which in the opinion of the
inspecting authority are relevant for the purposes of the inspection.
(3) The inspecting authority shall in the course of inspection, be
entitled to examine or record statements of any principal officer, director,
partner, proprietor and employee of the portfolio manager.
(4) It shall be the duty of every director, proprietor, partner, officer or
employee of the portfolio manager to give to the inspecting authority all
assistance in connection with the inspection which the portfolio manager
may reasonably be expected to give.
27. Submission of report to the Board.─ The inspecting authority
shall, as soon as may be possible, submit an inspection report to the
Board.
1[28. Action on inspection or investigation report.─ The Board or
the Chairman shall after consideration of the inspection or investigation
report take such action as the Board or Chairman may deem fit and
1 Substituted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002, w.e.f. 27-09-2002. Prior to substitution, regulation 28 read as under:
“28. Communication of findings etc. to the portfolio manager.─(1) The Board shall after
consideration of the inspection report communicate the findings to the portfolio manager to give him an
opportunity of being heard before any action is being taken by the Board on the findings of the inspecting
authority.
(2) On receipt of the application, if any, from the portfolio manager, the Board may call upon the
portfolio manager to take such measures as the Board may deem fit in the interest of the securities market
and for due compliance with the provisions of the Act, rules and regulations.”
Page 31 of 61
appropriate including action under 1[Chapter V of the Securities and
Exchange Board of India (Intermediaries) Regulations, 2002.]]
29. Appointment of Auditor.─ The Board may appoint a qualified
auditor to investigate into the books of account or the affairs of the
portfolio manager:
Provided that the auditor so appointed shall have the same powers of
the inspecting authority as are mentioned in regulation 24 and the
obligation of the portfolio manager and his employees in regulation 26
shall be applicable to the investigation under this regulation.
Explanation.─ For the purposes of sub-regulation (2) of regulation 20
and under this regulation, the expression "qualified auditor" shall have the
same meaning as given to it in section 226 of the Companies Act, 1956 (1
of 1956).
CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT
30. 2[Liability for action in case of default.─ A portfolio manager who
contravenes any of the provisions of the Act, Rules or Regulations framed
thereunder shall be liable for one or more action specified therein
including the action under Chapter V of the Securities and Exchange
Board of India (Intermediaries) Regulations, 2008.]
1 Substituted for “the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry
Officer and Imposing Penalty) Regulations, 2002” by the SEBI (Intermediaries) Regulations, 2008, w.e.f.
26-05-2008.
2 Substituted by the SEBI (Intermediaries) Regulations, 2008, w.e.f. 26-05-2008. Prior to substitution,
regulation 30 as substituted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing
Penalty) Regulations, 2002, w.e.f. 27-09-2002, read as under:
"30. Liability for action in case of default.─ (1) A portfolio manager who-
(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations;
shall be dealt with in the manner provided under the Securities and Exchange Board of India
(Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty) Regulations,
2002.
Page 32 of 61
31. to 38. 1[* * *]
1 Omitted by the Securities (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002, w.e.f. 27-09-2002. Prior to their omission, regulations 31 to 38 read as under:
"31. Suspension of registration.─(1) A penalty of suspension of registration of a portfolio manager may be
imposed where -
(i) the portfolio manager violates the provisions of the Act, rules or regulations;
(ii) the portfolio manager -
(a) fails to furnish any information relating to his activity as portfolio manager as required by the
Board;
(b) furnishes wrong or false information;
(c) does not submit periodical returns as required by the Board;
(d) does not co-operate in any enquiry conducted by the Board;
(iii) the portfolio manager fails to resolve the complaints of the investors or fails to give a satisfactory reply
to the Board in this behalf;
(iv) the portfolio manager indulges in manipulating or price rigging or cornering activities;
(v) the portfolio manager is guilty of misconduct or improper or unbusinesslike or unprofessional conduct
which is not in accordance with the Code of Conduct specified in Schedule III;
(vi) the portfolio manager fails to maintain the capital adequacy requirement in accordance with the
provisions of regulation 7;
(vii) the portfolio manager fails to pay the fees;
(viii) the portfolio manager violates the conditions of registration;
(ix) the portfolio manager does not carry out his obligations as specified in the regulation.
32. Cancellation of registration.─A penalty of cancellation of registration of a portfolio manager may be imposed
where:-
(i) the portfolio manager indulges in deliberate manipulation or price rigging or cornering activities affecting
the securities market and the investors interest;
(ii) the financial position of the portfolio manager deteriorates to such an extent that the Board is of the
opinion that his continuance as portfolio manager is not in the interest of investors;
(iii) the portfolio manager is guilty of fraud, or is convicted of a criminal offence;
(iv) the portfolio manager is guilty of repeated defaults of the nature mentioned in regulation 31 provided
that the Board furnishes the reasons for cancellation in writing.
33. Manner of making order of suspension and cancellation.─No order of penalty of suspension or cancellation, as
the case may be, shall be imposed except after holding an enquiry in accordance with the procedure specified in
regulation 34.
34. Manner of holding enquiry before suspension or cancellation.─(1) For the purpose of holding an enquiry
under regulation 33, the Board may appoint an enquiry officer.
(2) The enquiry officer shall issue to the portfolio manager a notice at the registered office or the principal place of
business of the portfolio manager.
(3) The portfolio manager may, within thirty days from the date of receipt of such notice, furnish to the enquiry
officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the
portfolio manager.
(4) The enquiry officer shall, give a reasonable opportunity of hearing to the portfolio manager to enable him to
make submissions in support of his reply made under sub-regulation (3).
(5) Before the enquiry officer, the portfolio manager may either appear in person or through any person duly
authorised by the portfolio manager:
Provided that no lawyer or advocate shall be permitted to represent the portfolio manager at the enquiry:
Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under
sub- regulation (6), it shall be lawful for the portfolio manager to present its case through a lawyer or advocate.
(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its
case.
(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the portfolio
manager, submit a report to the Board and recommend the penalty to be imposed as also the grounds on the basis of
which the proposed penalty is justified.
35. Show-cause notice and order.─(1) On receipt of the report from the enquiry officer, the Board shall consider
the same and issue a show-cause notice as to why the penalty as proposed by the enquiry officer should not be imposed.
(2) The portfolio manager shall within twenty-one days of the date of the receipt of the show- cause notice send a
reply to the Board.
(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not
later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.
(4) Every order passed under sub-regulation (3) shall be self-contained and give reasons for the conclusions stated
therein including justification of the penalty imposed by that order.
(5) The Board shall send a copy of the order under sub- regulation (3) to the portfolio manager.
36. Effect of suspension and cancellation of registration of portfolio manager.─(1) On and from the date of the
suspension of the portfolio manager he shall cease to carry on any activity as a portfolio manager during the period of
suspension.
Page 33 of 61
1[CHAPTER VI
MISCELLANEOUS
39. Power of the Board to issue clarifications.─ In order to remove any
difficulties in respect of the application or interpretation of these
regulations, the Board may issue clarifications or guidelines in the form of
circulars.]
SCHEDULE I
FORMS
FORM A
Securities and Exchange Board of India (Portfolio Managers) Regulations,
1993
Application for grant of certificate/renewal of certificate
Name of Applicant: ___________________________________________
Name of Person to Contact: ____________________________________
Designation: ________________________________________________
Telephone No: _______________________________________________
(2) On and from the date of cancellation, the portfolio manager shall with immediate effect cease to carry on any
activity as a portfolio manager.
37. Publication of order of suspension.─ The order of suspension or cancellation of certificate passed under sub-
regulation (3) of regulation 35 shall be published in at least two daily newspapers by the Board.
38. Appeal to the Securities Appellate Tribunal.─ Any person aggrieved by an order of the Board made, on and
after the commencement of the Securities Laws (Second Amendment) Act, 1999, (i.e., after 16th December 1999),
under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.
[Regulation 38 was substituted by the SEBI (Appeal to Securities Appellate Tribunal) (Amendment) Regulations, 2000,
w.e.f. 28-3-2000 for "Any person aggrieved by an order of the Board may prefer an appeal to the Government."]
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
Page 34 of 61
Instruction:
1. Applicants must submit a completed application form together with
appropriate supporting documents to the Board.
2. It is important that this application form should be filled in accordance
with the regulations.
3. Application for registration will be considered provided it is complete in
all respects.
4. Answers must be typed/ printed.
5. Information which needs to be supplied in more details may be given
on separate sheets which should be attached to the application form.
6. All signatures must be original.
PART: I GENERAL INFORMATION
1.0 PARTICULARS OF THE APPLICANT
1.1 Name of the Applicant:
1.2 Address - Principal place of business/registered office:
Pin code: _____________________ Telephone No: ______________
Telex No: _____________________ Fax No: ___________________
1.3 Address for Correspondence:
Pin code: ______________________ Telephone No: _____________
Page 35 of 61
Telex No: ______________________ Fax No: __________________
Address of Branch Offices (in India & Abroad):
1.4 Application to Board for any other intermediary activity: ___________
2.0 ORGANISATION STRUCTURE
(Organisation Chart separately showing functional responsibilities of
portfolio management activities to be enclosed)
2.1 Objectives: In brief.
(Memorandum and Articles of Association to be enclosed).
2.2 Date and Place of Incorporation/Establishment:
Day Month Year Place
2.3 Status of the Applicant: (e.g. limited company-Private/Public,
unlimited company, 1[***] others. If listed, names of the stock
exchanges and latest share price: to be given.)
2.4 Organisation Chart: General Organisation & specific Activity.
(i.e. Applied for registration) also state the functional responsibility.
2.5 Particulars of all Directors 2[***] and key management personnels:
[Name;
Qualification;
Experience;
(General
and
specific
Intermediaries activity); Ownership details; (Date of Appointment)
Other directorship; (Name & Date of Appointment); Previous
positions held.]
1 Words and commas “partnership, proprietary,” omitted by SEBI (Portfolio Managers) (Amendment)
Regulations, 2008, w.e.f. 11-08-2008.
2 Words and marks “/partners/proprietor” omitted by SEBI (Portfolio Managers) (Amendment) Regulations,
2008, w.e.f. 11-08-2008.
Page 36 of 61
2.6 Number of employees
(General and for Specific Intermediaries activity)
2.7 Name and activities of associate companies/ concerns
Name of
company
/firm
Address/
phone
numbers
Type of
activity
handled
Ownership
details
Nature /
Quantum of
financial
dealing
Nature of
interest of
promoter
/director
Nature
of
interest of
applicant
company
2.8 List of major shareholders (holding 5% or more voting shares)
Name; Share holding pattern i.e., no of share to its % to total capital)
3.0 DETAILS OF INFRASTRUCTURAL FACILITIES
3.1 Office Space
3.2 Office Equipment
3.3 Furniture & Fixtures
3.4 Communication Facilities
3.5 Data Processing Capacity
(a) In-house:
(b) Others:
3.6 Computer facility:
(a) Hardware configuration
(b) Software Environment
Page 37 of 61
4.0 BUSINESS PLAN (FOR THREE YEARS)
(a) History, Major events and present activities
(b) Proposed business plan & means of achieving the same.
(c) Projected Profitability (Next three years)
(Physical targets, modus operandi to achieve targets, Resultant
Income)
5.0 FINANCIAL INFORMATION
5.1 Capital Structure
(Rs. in lakhs)
Year prior to the
preceding year of current
year
Preceding
year
Current
year
(a) Paid-up capital
(b) Free reserves
(excluding evaluation
reserves)
(c) Total (a) + (b)
Note: 1[* * *}
5.2 Deployment of Resources
(Rs. in lakhs)
Year prior to the
Preceding
Current
1 Notes omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
their omission, notes read as under:
“1. In case of partnership or proprietary concerns, please indicate capital minus drawings.
2. In case of partnership or proprietary concerns, please indicate the financial position, means and”
Page 38 of 61
preceding year of
current year
year
year
(a) Fixed Assets
(b) Plant & Machinery and
office equipment
(c) Investments (Details
should be given
separately)
(d) Others
Major Sources of Income:
(Rs. in lakhs)
Year prior to the
preceding year of
current year
Preceding
year
current year
* Fees charged as % of issue
5.4 Net Profit
(Rs. in lakhs)
Year prior to the
preceding year of
current year
Preceding
year
current year
5.5 Name and Address of the Principal Bankers
5.6 Name and Address of the Auditors
Page 39 of 61
6.0 OTHER INFORMATION
6.1 Details of all settled and pending disputes:
Nature of dispute
Name of the party
Pending/settle
6.2 Indictment of involvement in any economic offences in the last three
years.
6.3 Indicate dealing/ trading with any Intermediary who has defaulted
with or suspended by any stock exchange authorities or any other
authorities.
6.4 Any other information considered relevant to the nature of services
rendered by the company.
6.5 Names of two references from bankers (For applicants other than
financial institutions & banking companies)
PART II SPECIFIC INFORMATION
7.0 BUSINESS INFORMATION
7.1 Indicate type of activity carried on/ proposed to be carried on.
7.2 Indicate the facilities for making decision on portfolio investment.
7.3 1[* * *]
1 Omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
omission, clause 7.3 read as under:
“7.3 Describe portfolio management schemes floated during last years/ proposed to float during next year.
(Enclose a copy of typical contract entered with the client for Portfolio Management Services)”
Page 40 of 61
7.4 Enclose a copy of list of approved share brokers, involved for
Portfolio Management 1[* * *] activities and state whether any of them
were suspended/had defaulted with any Stock Exchange authority.]
7.5 Describe Accounting system followed/to be followed for Portfolio
Management Services 2[* * *].
7.6 Indicate various research & database facilities provided.
8.0 EXPERIENCE
8.1 Experience in Portfolio management activities. Indicate period also.
8.2 Experience in other financial services rendered: (Period, Area and
Date of Commencement of Activity).
8.3 Business handled during the last year:
(a) Portfolio Management
(DISCRETIONARY NATURE)
For
Resident/Non-
Resident
Individual
Client
Corporate
Client
1. Types of services offered
2. No. of portfolio clients
3. Total amount of funds
managed
4. Average size of portfolio
1 The word “scheme” omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-
2008.
2 The words and brackets “(Clientwise and Schemewise)” omitted, ibid.
Page 41 of 61
5. Average return to the client
6. 1[* * *]
(NON-DISCRETIONARY
NATURE)
FOR
Resident/Non-
Resident
Individual
Client:
Corporate
Client:
1. Types of services offered
2. Number of portfolio clients
3. Total amount of funds
managed
4. Average size of portfolio
5. Average return to the client
6. 2[* * *]
(b) Only Portfolio Advisory Services
(Indicate for both Resident/Non-resident clients)
(c) List of Clients (Corporate clients only)
Name
Amount of portfolio Fund managed
Services Rendered
1 The words “Average period of Portfolio Management Schemes” omitted by SEBI (Portfolio Managers)
(Amendment) Regulations, 2008, w.e.f. 11-08-2008.
2 The words “Average period of Portfolio Management Schemes” omitted, ibid.
Page 42 of 61
DECLARATION
1[This declaration must be signed by two directors,]
___________________________________________________________
I/We hereby, apply for Registration. I/We warrant that I/We have truthfully
and fully answered the questions above and provided all the information
which might reasonably be considered relevant for the purposes of my/our
registration.
For and on behalf of
__________________________________________________________
(Name of Applicant)
_____________________________ __________________________
Director/ 2[* * *] Director/ 3[* * *]
____________________________ __________________________
Name in Block Letters Name in Block Letters
Place: Place:
Date: Date:
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
substitution, the it read as under:
"This Declaration must be signed by two Directors, Two Partners or the Sole Proprietor, as the case
may be”.
2 The words and marks “/Partner or Sole Proprietor” omitted by SEBI (Portfolio Managers) (Amendment)
Regulations, 2008, w.e.f. 11-08-2008.
3 The words and marks “/Partner or Sole Proprietor” omitted, ibid.
Page 43 of 61
FORM B
Securities and Exchange Board of India (Portfolio Managers) Regulations,
1993
[Regulation 8]
Certificate of Registration
I. In exercise of the powers conferred by sub-section (1) of section 12
of the Securities and Exchange Board of India Act, 1992, read with
the regulations made thereunder for the portfolio managers the Board
hereby grants a certificate of registration to _____________ as a
portfolio manager subject to the conditions in the rules and in
accordance with the regulations.
II. Registration Code for the portfolio manager is PM / /
III. Unless renewed, the certificate of registration is valid from ________
to _________.
Place:
Date: By Order
For and on behalf of
Securities and Exchange Board of India
Authorised signatory
1[FORM C
Securities and Exchange Board of India (Portfolio Managers) Regulations,
1993
[Regulation 14]
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
Page 44 of 61
_______________________________________________________
(Name of the Portfolio Manager)
(Address of the Portfolio Manager (including phone numbers, fax, email
etc.)
We confirm that:
i) the Disclosure Document forwarded to the Board is in accordance with
the SEBI (Portfolio Managers) Regulations, 1993 and the guidelines
and directives issued by the Board from time to time;
ii) the disclosures made in the document are true, fair and adequate to
enable the investors to make a well informed decision regarding
entrusting the management of the portfolio to us / investment in the
Portfolio Management 1[* * *];
iii) the Disclosure Document has been duly certified by an independent
chartered accountant (Indicate name, address, phone number and
registration number of the chartered accountant) on ________ (date).
(Enclose a copy of the chartered accountants' certificate to the effect
that the disclosures made in the document are true, fair and adequate
to enable the investors to make a well informed decision)
Date: Signature of the Principal Officer
Place: Name and address of the Principal Officer]
SCHEDULE II
Securities and Exchange Board of India (Portfolio Managers) Regulations,
1993
1 The word “Scheme” omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-
2008.
Page 45 of 61
[Regulation 12]
FEES
1[1.
Every portfolio manager shall pay a non-refundable fee of one lakh
rupees along with the application for grant or renewal of certificate
of registration.]
2[(1A) Every portfolio manager shall pay a sum of 3[ten lakh rupees] as
registration fees at the time of the grant of certificate by the Board.]
4[2.
Every portfolio manager shall pay a renewal fee of five lakh rupees
upon grant of renewal.]
3. (a) The fee referred to in paragraph (1) shall be paid by the portfolio
manger within fifteen days from the date of receipt of intimation
from the Board under regulation 8.
1 Substituted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 7-09-2006.
Prior to substitution, paragraph 1, inserted by the SEBI (Portfolio Managers) (Amendment) Regulations,
2004, w.e.f. 27-05-2004 read as under:
“1. Every portfolio manager shall pay a sum of Rs. 25,000/- as application fees along with the
application for grant of certificate of registration.”
Prior to such substitution, paragraph 1, 2, 3 and 4 were substituted by the SEBI (Portfolio Managers)
(Amendment) Regulations, 1999, w.e.f. 30-09-1999 for the following:
"1. Every Portfolio Manager shall subject to paragraphs 3 and 4 of this Schedule, pay a sum of Rs
2.50 lakhs every year for the first two years and thereafter a sum of Rs 1 lakh for the third year.
2. Every Portfolio Manager shall to keep his registration in force, pay renewal fee of Rs.75, 000/- per
annum from the fourth year from the date of initial registration.
3. Fee specified in paragraphs (1) and (2) above shall be paid in the following manner –
a) First installment is to be paid within 15 days from the date of intimation from the Board under
regulation 8.
b) Subsequent installments including the renewal fee to be paid on or before expiry of 12 months
of each year of registration beginning from date of grant of such registration.
4. The fees specified in paragraphs (1) and (2) above, shall be payable by [a cheque or] draft in favor
of "Securities and Exchange Board of India" at Bombay [or at the respective regional office.] [The words
“a cheque or” omitted by the Securities and Exchange Board of India (Payment of Fees) Amendment
Regulations, 1995, w.e.f. 28-11-95]. The words "or at the respective regional office" inserted by the
Securities and Exchange Board of India (Payment of Fees) Amendment Regulations, 1995 w.e.f. 28-11-95.
2 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2004, w.e.f. 27-05-2004.
3 Substituted for “Rs.5 lakhs” by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006,
w.e.f. 7-09-2006
4 Substituted by the SEBI (Portfolio Managers) (Second Amendment) Regulations, 2006, w.e.f. 7-09-2006.
Prior to substitution, paragraph 2 inserted by the SEBI (Portfolio Managers) (Amendment) Regulations,
1999, w.e.f. 30-09-1999 read as under:
“Every portfolio manager to keep his registration in force shall pay renewal fee of Rs. 2.5 lakhs every three
years from the fourth year from the date of initial registration.”
Page 46 of 61
(b) The fee referred to in paragraph (2), shall be paid by the portfolio
manager within fifteen days from the date of receipt of intimation
from the Board 1[under sub-regulation (3) of regulation 9.]
4.
The fees specified in paragraphs (1) and (2) above, shall be
payable by the portfolio manager by a demand draft in favour of
"Securities and Exchange Board of India" payable at Mumbai or at
the respective regional office.]
SCHEDULE III
Securities and Exchange Board of India (Portfolio Managers) Regulations,
1993
[Regulation 13]
CODE OF CONDUCT- PORTFOLIO MANAGER
1. A portfolio manager shall, in the conduct of his business, observe high
standards of integrity and fairness in all his dealings with his clients
and other portfolio managers.
2. The money received by a portfolio manager from a client for an
investment purpose should be deployed by the portfolio manager as
soon as possible for that purpose and money due and payable to a
client should be paid forthwith.
3. A portfolio manager shall render at all times high standards of service,
exercise due diligence, ensure proper care and exercise independent
professional judgment. The portfolio manager shall either avoid any
conflict of interest in his investment or disinvestment decision, or where
1 Substituted for “disposing of the application for renewal made under sub-regulation (1) of regulation 9”, by
the SEBI (Portfolio Managers (Second Amendment) Regulations), 2006, w.e.f. 7-09-2006.
Page 47 of 61
any conflict of interest arises, ensure fair treatment to all his
customers. He shall disclose to the clients, possible source of conflict
of duties and interests, while providing unbiased services. A portfolio
manager shall not place his interest above those of his clients.
4. A portfolio manager shall not make any statement or become privy to
any act, practice or unfair competition, which is likely to be harmful to
the interests of other portfolio managers or is likely to place such other
portfolio managers in a disadvantageous position in relation to the
portfolio manager himself, while competing for or executing any
assignment.
5. A portfolio manager shall not make any exaggerated statement,
whether oral or written, to the client either about the qualification or the
capability to render certain services or his achievements in regard to
services rendered to other clients.
6. At the time of entering into a contract, the portfolio manager shall
obtain in writing from the client, his interest in various corporate bodies
which enables him to obtain unpublished price-sensitive information of
the body corporate.
7. A portfolio manager shall not disclose to any clients, or press any
confidential information about his client, which has come to his
knowledge.
8. The portfolio manager shall where necessary and in the interest of the
client take adequate steps for registration of the transfer of the clients'
securities and for claiming and receiving dividends, interest payments
and other rights accruing to the client. He shall also take necessary
action for conversion of securities and subscription/renunciation of/or
rights in accordance with the clients' instruction.
Page 48 of 61
9. A portfolio manager shall endeavor to -
(a) ensure that the investors are provided with true and adequate
information without making any misguiding or exaggerated claims
and are made aware of attendant risks before any investment
decision is taken by them;
(b) render the best possible advice to the client having regard to the
client's needs and the environment, and his own professional skills;
(c) ensure that all professional dealings are effected in a prompt,
efficient and cost effective manner.
10. (1) A portfolio manager shall not be a party to -
(a) creation of false market in securities;
(b) price rigging or manipulation of securities;
(c) passing of price sensitive information to brokers, members of
the stock exchanges and any other intermediaries in the capital
market or take any other action which is prejudicial to the
interest of the investors.
(2) No portfolio manager or any of its directors, partners or manager shall
either on their respective accounts or through their associates or family
members, relatives enter into any transaction in securities of
companies on the basis of unpublished price sensitive information
obtained by them during the course of any professional assignment.
1[11.(a) A portfolio manager or any his employees shall not render,
directly or indirectly any investment advice about any security in
the publicly accessible media, whether real-time or non-real-time,
unless a disclosure of his long or short position in the said
security has been made, while rendering such advice.
1 Inserted by the SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2001, w.e.f. 29-5-
2001.
Page 49 of 61
(b) In case an employee of the portfolio manager is rendering such
advice, he shall also disclose the interest of his dependent family
members and the employer including their long or short position in
the said security, while rendering such advice.]
1[12. (a) The portfolio manager shall abide by the Act, and the Rules,
Regulations made thereunder and the Guidelines / Schemes
issued by the Board.
(b) The portfolio manager shall comply with the model code of
conduct specified in the SEBI (Prohibition of Insider Trading)
Regulations, 1992.
(c) The portfolio manager shall not use his status as any other
registered intermediary to unduly influence the investment
decision of the clients while rendering portfolio management
services.]
2[SCHEDULE IV
CONTENTS OF AGREEMENT BETWEEN THE PORTFOLIO MANAGER
AND HIS CLIENTS
[Regulation 14]
The following shall be mentioned in the agreement -
1. Appointment of portfolio manager.
2. Scope of services to be provided by the portfolio manager subject to
the activities permitted under SEBI (Portfolio Managers) Regulations,
1 Inserted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2002, w.e.f. 11-10-2002.
2 ibid.
Page 50 of 61
1993, viz, advisory, investment management, custody of securities,
keeping track of corporate benefits associated with the securities.
The Portfolio Manager shall act in a fiduciary capacity and as a
trustee and agent of the clients' account.
3. Functions, obligations, duties and responsibilities (as discretionary
and non discretionary to be given separately) with specific provisions
regarding instructions for non discretionary portfolio manager, inter
alia -
(i)
terms in compliance with the Act, SEBI (Portfolio Managers)
Regulations,1993, rules, regulations, guidelines made under the
Act and any other laws/rules/regulations / guidelines etc.;
(ii) providing reports to clients;
(iii) maintenance of client wise transaction and related books of
accounts;
(iv) provisions regarding audit of accounts as required under the
SEBI (Portfolio Managers) Regulations, 1993;
(v) settlement of accounts and procedure therefore including the
provisions for payment on maturity or early termination of the
contract.
4. Investment objectives and guidelines -
(i)
Types of securities in which investment would be made
specifying restrictions, if any.
(ii)
Particulars
regarding
amount,
period
of
management,
repayment or withdrawal.
(iii) Taxation aspects such as Tax Deducted at Source etc., if any.
(iv) Condition that the portfolio manager shall not lend the securities
of the client unless authorized by him in writing.
5. Risk factors
Page 51 of 61
(i) A detailed statement of risks associated with each type of
investment including the standard risks associated with each
type of investment.
(ii)
1[* * *]
6. Period of agreement- minimum period if any, and provision for
renewal, if any.
7. Conditions, under which agreement may be altered, terminated and
implications thereof, such as settlement of amounts invested,
repayment obligations etc.
(i) Voluntary/mandatory termination by the portfolio manager;
(ii) Voluntary/mandatory termination by the client;
(iii) Suspension by the Board or other regulatory authority.
8. Maintenance of Accounts- Maintenance of accounts separately in the
name of the client as are necessary to account for the assets and
any additions, income, receipts and disbursements in connection
therewith, as provided under SEBI (Portfolio Managers) Regulations,
1993.
9. Change in the quantum of funds to be managed- The conditions
under which the client may withdraw cash or securities from the
portfolio account or bring in additional cash to be managed as per the
terms and conditions that apply. The portfolio manager shall not
change any terms of the agreement without prior consent of the
client.
1 Omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
omission, clause 7.3 read as under:
“Risk factor specified to the scheme as well as those attendant to specific investment policies and
objective of the scheme”.
Page 52 of 61
10. Access to information- (Subject to the provisions of SEBI (Portfolio
Managers)Regulations,1993) - Provisions enabling client to get the
books of accounts of the portfolio manager relating to his
transactions audited by a chartered accountant appointed by him and
permitting the client an access to relevant and material documents of
portfolio manager, provisions listing the documents for inspection
along with timings for such inspection, furnishing of reports to the
client subject to furnishing at least once in six months and the reports
to be made available on the web site of the portfolio manager with
restricted access to each client and other rights of clients etc. The
provision that the statements / documents / report furnished by the
portfolio manager to the client present a true and fair picture of the
actual transactions.
11. Terms of Fees- The quantum and manner of payment of fees and
charges for each activity for which services are rendered by the
portfolio manager directly or indirectly (where such service is
outsourced) such as investment management, advisory, transfer,
registration and transaction costs with specific references to
brokerage costs, custody charges, cost related to furnishing regular
communication,
account
statement,
miscellaneous
expenses
(individual expenses in excess of 5% to be indicated separately) etc.
The provision that the portfolio manager shall take prior permission
from the client in this respect.
12. Billing- Periodicity of billing, whether payment to be made in advance,
manner of payment of fees, whether setting off against the account
etc., type of documents evidencing receipt of payment of fees.
13. Liability of portfolio manager- Liability of portfolio manager in
connection with recommendations made, to cover errors of judgment,
Page 53 of 61
negligence, willful misfeasance in connection with discharge of
duties, acts of other intermediaries, brokers, custodians etc.
14. Liability of client- restricting the liability of the client to the extent of
his investment.
15. Death or Disability- providing for continuation/termination of the
agreement
in
event
of
client's
death/disability,
succession,
nomination, representation etc. to be incorporated.
16. Assignment- Conditions for assignment of the agreement by client.
17. Governing Law- The law/jurisdiction of country/state which governs
the agreement to be stated.
18. Settlement of grievances/disputes and provision for arbitration-
(Provisions to cover protection of act done in good faith, Risks and
losses, redressal of grievances, dispute resolution mechanism,
reference for arbitration and the situations under which such rights
may arise, may be made).
SCHEDULE V
DISCLOSURE DOCUMENT
[Regulation 14]
General instructions
1. This Disclosure Document is to be given to the prospective client along
with the account opening form (as per Format I) at least two days in
advance of signing of the agreement.
Page 54 of 61
2. This Disclosure Document is to be filed with the Board before it is
circulated or issued to any person and every six month thereafter or
whenever any material changes are effected therein.
3. This model Disclosure Document enumerates the minimum disclosure
requirements to be contained in the disclosure document. The portfolio
manager may make any other disclosures, which in its opinion are
material for the investor, provided that such information is a statement
of fact and is not presented in an incomplete, inaccurate or misleading
manner. It should also be ensured that inclusion of such information
does not, by virtue of its nature or manner of presentation, hamper
understanding of any information that is required to be included under
the model disclosure document
The model Disclosure Document specifies only the nature of the
disclosures that should be contained under various heads in the
disclosure document, and is not intended to describe the layout or
language to be contained therein.
MODEL DISCLOSURE DOCUMENT FOR PORTFOLIO MANAGEMENT
The minimum disclosures to be given in the Disclosure Document shall be
as under and due care shall be taken to present the information in simple
language and in a clear, concise and easily understandable manner –
I. Front page
Page 55 of 61
(i)
The Document has been filed with the Board along with the
certificate in the prescribed format in terms of Regulation 14 of the
SEBI (Portfolio Managers) Regulations, 1993.
(ii)
The purpose of the Document is to provide essential information
about the portfolio services in a manner to assist and enable the
investors in making informed decision for engaging a portfolio
manager.
(iii) The necessary information about the portfolio manager required by
an investor before investing, and the investor may also be advised
to retain the document for future reference.
(iv) 1[* * *]
(v) The name, phone number, e-mail address of the principal officer so
designated by the portfolio manager is………… (Give details).
II. Index page giving item number, contents and page number
III. Contents of the Document
1) Disclaimer clause
A statement to the effect that the particulars have been prepared in
accordance with the SEBI (Portfolio Managers) Regulations,1993 and
filed with SEBI. This Document has neither been approved or
disapproved by SEBI nor has SEBI certified the accuracy or adequacy
of the contents of the Document.
2) Definitions
All terms used in the Disclosure Document be defined. The language
and terminology used in the Disclosure Document shall be as provided
1 Omitted by SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
omission, sub-item (iv) read as under:
“All the intermediaries involved in the scheme are registered with SEBI as on the date of the
document”.
Page 56 of 61
in the Regulations. Any new term if used shall be clearly defined. All
terms shall be used uniformly throughout the text of the Disclosure
Document.
3) Description
(i) History, Present Business and Background of the portfolio manager
(ii) Promoters of the portfolio manager, directors and their background
(iii)Top 10 Group companies/firms of the portfolio manager on turnover
basis (latest audited financial statements may be used for this
purpose)
(iv)Details of the services being offered: Discretionary/ Non
discretionary / Advisory.
4) Penalties,
pending
litigation
or
proceedings,
findings
of
inspection or investigations for which action may have been
taken or initiated by any regulatory authority.
(i) All cases of penalties imposed by the Board or the directions issued
by the Board under the Act or Rules or Regulations made
thereunder.
(ii) The nature of the penalty/direction.
(iii) Penalties imposed for any economic offence and/ or for violation of
any securities laws.
(iv) Any pending material litigation/legal proceedings against the
portfolio manager/key personnel with separate disclosure regarding
pending criminal cases, if any.
(v) Any deficiency in the systems and operations of the portfolio
manager observed by the Board or any regulatory agency.
(vi) Any enquiry/ adjudication proceedings initiated by the Board
against the portfolio manager or its directors, principal officer or
employee or any person directly or indirectly connected with the
Page 57 of 61
portfolio manager or its directors, principal officer or employee,
under the Act or Rules or Regulations made thereunder..
5) Services Offered
(i) The present investment objectives and policies including the types
of securities in which it generally invests shall be clearly and
concisely stated in the document for easy understanding of the
potential investor.
(ii) The policies for investments in associates/group companies of the
portfolio manager and the maximum percentage of such
investments therein subject to the applicable laws/regulations/
guidelines.
6) Risk factors
1[(i) Statement to the effect that securities investments are subject to
market risks and there is no assurance or guarantee that the
objective of the investments will be achieved.]
2[(ii) Statement to the effect that past performance of the portfolio
manager does not indicate its future performance.]
(iii) Risk arising from the investment objective, investment strategy and
asset allocation.
(iv) Risk arising out of non diversification, if any.
3[(v) If the portfolio manager has no previous experience/ track record a
disclosure to that effect shall be made.]
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
substitution, clause (i) read as under:
“Statement to the effect that securities investments are subject to market risk and there is no assurance
or guarantee that the objectives of the scheme will be achieved.”
2 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2008, w.e.f. 11-08-2008. Prior to
substitution, clause (ii) read as under:
“Statement to the effect that past performance of the portfolio manager does not indicate the future
performance of the same scheme in future or any other future schemes of the portfolio manager.”
3 Substituted by the SEBI (Portfolio Managers ) (Amendment) Regulations, 2008, w.e.f. 11.08.2008 for the
following:
Page 58 of 61
7) Client Representation
(i)
Category of clients
No. of
clients
Funds
managed (Rs.
Cr.)
Discretionary/
Non
Discretionary (if
available)
Associates /group
companies
Last 3 years
Others (last 3 years )
Total
(ii) Complete disclosure in respect of transactions with related parties as
per the standards specified by the Institute of Chartered Accountants
of India.
8) The Financial Performance of the portfolio manager (based on audited
financial statements)
9) Portfolio Management performance of the portfolio manager for the last
three years, and in case of discretionary portfolio manager disclosure
of performance indicators calculated using weighted average method
in terms of Regulation 14 of the SEBI (Portfolio Managers)
Regulations, 1993.
“If the portfolio manager has no previous experience/ track record, a disclosure to the effect that this
is the first scheme being launched by the portfolio manager.”
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10) Nature of expenses
(i) Investment management and advisory fees
(ii) Custodian fee
(iii) Registrar and transfer agent fee
(iv) Brokerage and transaction cost
A brief explanation shall be given to assist the investor in understanding
the various costs and expenses that an investor may have to bear directly
or indirectly. Additionally, appropriate cross-references may be given to
the relevant sections of the offer document for more complete description
in this regard.
11) Taxation
Disclose the implications of investments in securities and the tax
provisions on Income/ Loss or Tax Deduction at Source on various
investors.
12) Accounting policies
Disclose the accounting policy followed by the portfolio manager while
accounting for the portfolio investments of the clients.
13) Investors services
(i) Name, address and telephone number of the investor relation officer
who shall attend to the investor queries and complaints.
(ii) Grievance redressal and dispute settlement mechanism.
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Date: 1[Name and signature of at least
two Directors of Portfolio
Manger ]
Place:
FORMAT I (Account Opening Form)
Information about the Client
1) General information about the client
(a) Name, primary mailing address, secondary (back up) mailing
address, identity information such as photograph, Permanent
Account Number (PAN), driving license etc.
(b) Occupation _________
(c) Introduced by_______________ (name and full address)
(d) Annual incomes for the last 3 financial years and the networth as
on the last date of the respective years. (optional)
2) Investment profile of the client
(a) Investment experience regarding securities.
(b) Indicative percentage of total investment portfolio proposed to be
invested with the portfolio manager (optional).
(c) Overall investment goals such as capital appreciation, capital
appreciation & regular income or regular income.
(d) Risk tolerance i.e. low, medium or high.
1 Substituted by the SEBI (Portfolio Managers) (Amendment) Regulations, 2012, w.e.f. 10-2-2012. Prior to
substitution, it read as under:
“Name and Signature of all the Directors of the Portfolio Manager.”
Page 61 of 61
(e) Time period for which investments are proposed to be made with
the portfolio manager.
(f) Provisions for systematic withdrawal on a monthly, quarterly,
annual basis etc.
3) Detailed investment objectives of the client
(a) Equity: Nature of equities in which investments are desired, may
be indicated.
(b) Balanced: Percentage of debt/equity.
(c) Debt: Government Bonds, corporate debt etc.
(d) Mutual funds, venture funds etc.
(e) Others.
Date:
Place:
Signature of the client]