Who May Act as a Portfolio Manager — Registration and Obligations

Registration comes first

Nobody may offer PMS without a certificate of registration from SEBI under the SEBI (Portfolio Managers) Regulations, 2020. Registration brings the manager within SEBI's rules on fees, custody, reporting and conduct.

Registration is a licence to operate. It is not an assurance of performance: a registered manager's decisions can lose money, and returns are not guaranteed.

Conditions on the manager

The regulations require a portfolio manager to have a net worth of at least ₹5 crore. This is a condition on the manager's own business. It is separate from the ₹50 lakh minimum investment that applies to each client, and it does not protect clients against market losses.

The people who run the portfolios must be qualified as well: a portfolio manager's fund managers must hold the NISM Series XXI-B certification.

Continuing obligations to clients

A manager providing discretionary or non-discretionary services must appoint a custodian for clients' securities. Managers who provide only advisory services are exempt from this requirement.

A manager may not charge upfront fees, and must report to each client at least once a quarter. Managers must also offer clients the option of being onboarded directly, without a distributor.

Where a distributor is involved

A client may come through a distributor. A distributor of PMS must hold the NISM Series XXI-A certification and be registered with APMI, the Association of Portfolio Managers in India. APMI is the industry association with which distributors of PMS register; a portfolio manager's own registration comes from SEBI. AMFI registers mutual fund distributors, which is a different activity.

SEBI also controls how a distributor is paid. Commission may be paid on a trail basis only, that is, over time, and it comes out of the fees the portfolio manager receives. Upfront commission is not permitted, which sits alongside the bar on upfront fees.

Rules at a glance

Key points

• A portfolio manager must be registered with SEBI under the SEBI (Portfolio Managers) Regulations, 2020.
• The regulations require a net worth of at least ₹5 crore; fund managers hold the NISM Series XXI-B certification.
• A custodian must be appointed for discretionary and non-discretionary services; advisory-only managers are exempt.
• Distributors of PMS need the NISM Series XXI-A certification and registration with APMI.
• Distributor commission is trail only, paid from the manager's fees; there is no upfront commission.
• Registration is a licence to operate, not an assurance of returns.

Common misunderstandings

• A portfolio manager's registration does not come from APMI: SEBI grants it, and APMI is the association with which distributors of PMS register.
• The ₹5 crore net worth is not a guarantee fund for clients: it is a condition on the manager's own business and does not protect against market losses.
• The ₹5 crore figure is not the client minimum: the minimum investment for a client is ₹50 lakh.
• A distributor of PMS may not be paid a commission upfront: only a trail commission out of the manager's fees is allowed.

Questions people ask