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PORTFOLIO MANAGER

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Any person who pursuant to contract or arrangement with the client, advises or directs or undertakes on behalf of the client, the management or administration of a portfolio of securities or the funds of the clients, as the case may be. 

A portfolio manager plays an important role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him. A portfolio manager is responsible for designing customized investment solutions for the clients according to their financial needs. 

NORMS FOR REGISTRATION AS PORTFOLIO MANAGERS:

(a) the applicant is a body corporate; 

(b) the applicant fulfills the capital adequacy requirements; 

CAPITAL ADQUACY REQUIREMENT: Portfolio manager must have capital adequacy requirement of not less than Networth of two crores rupees. 

However, the portfolio manager shall fulfill capital adequacy requirement under these regulations, separately and independently of capital adequacy requirements if any for each activity undertaken by it under the relevant regulations.  

Networth means 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. 

PERIOD OF VALIDITY OF CERTIFICATE: The certificate of registration granted and its renewal granted under these regulation shall be valid for a period of three years from date of its issue to applicant.  

PROCEDURE WHERE REGISTRATION IS NOT GRANTED: Same  CONTRACT WITH CLIENTS AND DISCLOSURES: The Portfolio manager, 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 inter se relationship and setting out mutual rights, liabilities and obligations relating to management of funds or portfolio of securities containing the details. The agreement between the portfolio manager and the client shall inter alia, contain:

(i) The investment objectives and services to be provided;

(ii) areas of investments and restrictions, if any, imposed by client;

(iii) Types of instruments and proportion of exposure;

(iv) Tenure of portfolio investments;

(v) terms of early withdrawal of funds or securities by clients;

(vi) attendant risks involved in the management of the portfolio;

(vii) period of the contract and provision of early termination, if any;

(viii) fees payable to portfolio manager; (ix) custody of securities;

(x) the terms of accounts and audit and furnishing of reports to clients. 

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.  The disclosure document, shall inter alia contain the following:

(i) Portfolio Risks;

(ii) The performance of portfolio manager;

(iii) the audited financial statements of portfolio manager for immediately preceding three years;

(iv) Quantum and manner of payment of fees payable by the client for each activity for which services is rendered by Portfolio manager directly or indirectly;

(v) Complete disclosures in respect of transactions with related parties as per AS 18;  The content of disclosure document would be certified by an independent chartered accountant. 

The portfolio manager is required to file with SEBI, a copy of 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.  

The portfolio manager shall ensure that the disclosure document is given to client along with the account opening form at least 2 days in advance of signing the agreement.  

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 fixed fee or a return based fee or a combination of both. 

INTERNAL AUDIT OF PORTFOLIO MANAGER:

▪Every Portfolio Manager is required to appoint Practicing Company Secretary or a Practicing Chartered Accountant for conducting the internal audit. 

▪The Portfolio Manager is required to report the compliance of the aforesaid requirement to SEBI while submitting the half yearly report.

▪The report is to be submitted twice a year, as on 31st March and 30th September. The report should reach SEBI within 30 days of period to which it relates.

▪No precise period has been prescribed for PCS or PCA to submit his report to the Board of Company. However, it is advisable for PCS or PCA to give the audit report to Portfolio manager sufficiently well in advance to enable the company to report compliance of same to SEBI.

▪Scope of internal audit would comprise of checking of compliance of SEBI (portfolio managers) regulations 1993 and circulars, notifications or guidelines issued by SEBI and internal procedures followed by the Portfolio Manager. 

INVESTMENTS OF CLIENTS MONEY:

▪The money or securities accepted by PM shall not be invested or managed by PM except in terms of agreement between PM and Client. 

▪Any renewal of portfolio fund on maturity of initial period shall be deemed to be a fresh placement.

▪The funds or securities can be withdrawn or taken back by client before the maturity of contract under following circumstances:

-Voluntary or compulsory termination of Portfolio Management services by PM or Client;

-Suspension or cancellation of certificate of registration of PM by SEBI;

Bankruptcy or liquidation of PM;

▪The PM shall not while dealing with the client‟s funds indulge in speculative transactions that is, he shall not enter into any transaction for purchase of sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transaction in derivatives.

▪PM shall ordinarily purchase or sell securities separately for each client.  However, in the event of aggregation of purchase or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of day‟s transactions. The PM shall not keep any open position in respect of allocation of sales or purchases effected in a day.

▪Any transaction of purchase or sales including that between PM‟s own accounts and client‟s accounts or between two client‟s account shall be at the prevailing market price.

▪PM shall segregate each client‟s funds and portfolio of securities and keep them separately from his own funds and securities and be responsible for safekeeping of client‟s funds and securities.

▪Each PM shall appoint a custodian in respect of securities managed or administered by it. However, this regulation shall not apply to a PM who has total AUM of value less than Rs, 500 Crores or who performs purely advisory functions. 

ACCOUNTING BY PORTFOLIO MANAGER:

■ Every PM shall keep and maintain following books of account, records and documents, namely:

▪Copy each of balance sheet, profit & loss and auditor‟s report in respect of each accounting period;

▪Statement of financial position o Records in support of every investment transaction or recommendation which will indicate the data, facts and opinions leading to that investment decisions. 

■ PM shall furnish to SEBI half yearly unaudited financial results when required by SEBI with a view to assist in monitoring the Capital Adequacy of PM.

■ PM shall preserve the books of accounts for a minimum period of 5 years.

■ PM shall maintain separate client wise accounts.

■ Books of accounts shall be audited by a qualified auditor to ensure that PM has followed proper accounting methods and procedures and that he has performed duties in accordance with laws. A certificate to that effect shall, if so specified to be submitted to SEBI within 6 months of close of PM Accounting year.

■ The portfolio accounts of PM shall be audited annually by an independent CA and a copy of certificate issue by CA shall be given to client.

■ The client may appoint a CA to audit the books and account of PM relating to his transactions and PM shall co-operate with such CA in course of audit.

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