The ₹50 Lakh Minimum, the Client Agreement and Disclosures

The minimum and how it is met

SEBI's regulations set a minimum investment of ₹50 lakh for each PMS client. The regulations express it as funds or securities, so a client may bring in money or transfer existing securities of that value.

Securities brought in do not become safer by entering the account. They stay exposed to market risk like the rest of the portfolio, and their value can fall as well as rise.

The figure is an entry threshold fixed by regulation. It is not a measure of whether PMS fits any particular person.

Who is exempt

The minimum does not apply to accredited investors. An accredited investor is one who holds a certificate of accreditation after meeting the income or net-worth tests SEBI has laid down: for example, an individual with annual income of at least ₹2 crore, or net worth of at least ₹7.5 crore of which ₹3.75 crore is in financial assets.

SEBI's rules also recognise a large-value accredited investor, an accredited investor with a minimum investment of ₹10 crore with the portfolio manager. Some limits are relaxed for such clients, as later lessons note.

What the client agreement records

The relationship between a client and a portfolio manager rests on an agreement between the two. It records the service the manager will provide (discretionary, non-discretionary or advisory) and the fee the client will pay, whether fixed, performance-linked or both.

SEBI sets certain limits that an agreement cannot override. Upfront fees are barred, and exit loads and operating expenses are capped. Within those limits, SEBI does not fix a common fee schedule, so the terms a client is on are the terms of that client's own agreement.

What the client receives afterwards

Once the account is running, the portfolio manager must send the client a report on the account at least once a quarter. The client also receives an audited statement of the account every year, and may ask for a report when one is needed.

Reports and statements tell the client what has happened in the account. They carry no assurance about future returns. A PMS portfolio remains exposed to market risk and to the manager's decisions throughout.

Rules at a glance

Key points

• The PMS minimum is ₹50 lakh per client, brought in as funds or as securities.
• The minimum does not apply to accredited investors, who hold a certificate of accreditation after meeting SEBI's income or net-worth tests.
• The type of service and the fees are set out in the agreement between the client and the portfolio manager.
• SEBI bars upfront fees and caps exit loads and operating expenses, but does not fix a common fee schedule.
• Clients receive a report at least once a quarter and an audited statement each year.

Common misunderstandings

• The minimum need not be paid in money: it may be brought in as funds or as securities of that value.
• Age, residential status or being new to investing does not lower the minimum for a client who is not an accredited investor.
• SEBI does not publish a standard PMS fee: the fee is what the client agreement provides, within SEBI's limits.

Questions people ask