Structured Biiz

PORTFOLIO MANAGERS

Portfolio means the total holdings of securities and goods belonging to any person. The service provided for managing the funds of a client is called Portfolio Management. Portfolio Managers are the professionals who are responsible for managing, advising and supervising a portfolio of securities or goods or funds of the client. The Portfolio Manager holds a fiduciary duty and is expected to be capable for satisfying the needs of its client by investing the fund with the optimum return. Portfolio managers must act within the framework of the agreement signed. 

The concept of a portfolio manager is governed by the provisions of SEBI (Portfolio Management) Regulations, 2020. 

The Portfolio Manager is required to be registered with the SEBI for offering Portfolio Management Services.

Why creating a portfolio is beneficial?

  • It works as a strategy in creating a well balanced and diversified portfolio
  • It will help to meet long term financial aims
  • It will reduce risk factor
  • It will help to recover the losses
  • Shuffling of the investments by taking proper decisions to invest at the right time
  • Acts as a diversifying strategy (not putting all eggs in one basket)
  • It is a safer way of making investments

Types of Portfolio Management Services

Discretionary Portfolio Management

  • The Portfolio Manager/ Fund Manager individually and independently manages the funds and securities of each client in accordance with the needs of the client
  • The managers take all the decisions to buy or sell on the behalf of the client and use the strategy as they think it is right.
  • An investment expert does the whole handling of the portfolio & no stress for the client to make any decision.
  • If the manager and client have the same suggestions for the investment, then there is no clash and the management process is more straightforward and smooth.
  • One disadvantage is the fee cost is higher. With complete trust the client chooses to hand over all the investments to Discretionary Managers.

Non – Discretionary Portfolio Management

  • Under Non-discretionary management, the Portfolio Managers manage the funds in accordance with the directions of the clients.
  • They may also be called as Financial Advisors, since the final decision lies in the hands of a Client.
  • The Portfolio Manager only comes up with the suggestions. The Managers provide their Clients with all the pros and cons of the investing strategy and the financial segments, but can’t execute without client’s permission.
  • The Clients have the benefit of getting financial advice without giving up the control of investment.
  • Fee charged by Non-discretionary Portfolio Managers is comparatively lesser than the fee charged by the Discretionary Portfolio Managers.

Net Worth Requirement & Pre-requisites

  • The minimum Net Worth for Portfolio Managers is Rs. 5 Crores, which was earlier Rs. 2 Crores.
  • The detailed contract has to be made between the Investor and Portfolio Manager. And it shall include all particulars details of Portfolio Management Service and fees charged.
  • The new SEBI regulation has increased the minimum investment value to Rs. 50 Lakhs. Portfolio Manager shall not accept funds or securities less than Rs. 50 Lakh from the client.
  • The exact performance report is to be provided by the service provider to the client after every 3 (Three) months or whenever asked by the Client.

Registration Process

No person shall act as a Portfolio Manager unless it has obtained a Certificate of Registration from the Board under Securities And Exchange Board Of India (Portfolio Managers) Regulations, 2020.

Person has to make an application for the grant of a certificate to the Board (SEBI) in Form A of Schedule I and shall be accompanied by a non-refundable application fee of Rs. One Lakh. (Regulation 4(1))

  • The minimum net worth requirement for being a Portfolio Manager is Rs. 5 Crores, which was earlier Rs. 2 Crores.
  • The important condition is that an applicant must have a degree in finance and should have 10 years of experience in the stock market.

Any application, which  is  not complete in all respects and does not conform to the instructions specified in the form, shall be rejected (Regulation 5):

Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove objections indicated by the Board, within the time specified, not later than 3 weeks.

Once the application is approved, every portfolio manager shall pay a sum of Rs. 10 Lakhs (Rupees Ten Lakhs) as registration fees at the time of the grant of certificate by the Board.

The fee shall be paid by the portfolio manager within 15 (fifteen) days from the date of receipt of intimation from the Board under regulation 10.

A  Portfolio  Manager  who  has  been  granted  a  Certificate  of  Registration, to keep its registration in force, shall pay a fee of Rs. 5 Lakh (Rupees Five Lakh) every 3 (Three) years, from the date of grant  of  certificate  of  registration  or  from  the  date  of  grant  of  certificate  of  registration granted prior to the commencement of the Securities and Exchange Board of India (Change in Conditions of Registration of Certain Intermediaries) (Amendment) Regulations, 2016, as the  case  may  be,  within  three months  before  expiry  of  the  block  period  for  which fee  has been paid.

Responsibilities of the Portfolio Managers

  • The Discretionary Portfolio Manager shall individually and independently manage the funds of each client in accordance with the needs of the client, whereas the Non-discretionary Portfolio Manager shall manage the funds in accordance with the directions of the client.
  • Portfolio Manager shall not accept from the client, funds or securities worth less than Rs. 50 Lakh (Rupees Fifty Lakh).
  • Portfolio Manager shall act in a fiduciary capacity with regard to the client's funds.
  • Portfolio Manager shall segregate each client’s holding in securities in separate accounts.
  • Portfolio Manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank.
  • Portfolio Manager shall transact in securities within the limitation placed by the client with regard to dealing in securities under the provisions of the Reserve Bank of India Act, 1934.
  • Portfolio Manager shall not derive any direct or indirect benefit out of the client's funds or securities.
  • Portfolio Manager hall not borrow funds or securities on behalf of the client.
  • Portfolio Manager shall not lend securities held on behalf of the clients to a third person except as provided under these regulations.
  • Portfolio Manager shall ensure proper and timely handling of complaints from his clients and take appropriate action immediately.
  • Portfolio Manager shall ensure that any person or entity involved in the distribution of its services is carrying out the distribution activities in compliance with these regulations and circulars issued thereunder from time to time.

Liability for action in case of default

A Portfolio Manager who contravenes any of the provisions of the Act, rules or regulations framed  there under  shall  be  liable  for  one  or  more  actions  specified  therein  including  the  action under  Chapter  V  of  the  Securities  and  Exchange  Board  of India  (Intermediaries)  Regulations, 2008.

Under the said regulations, SEBI may appoint a Designated Authority for inspection and investigation of the alleged offence. After careful investigation and inspection, the Designated Authority may take the following measures:

  • i. Dispose of the proceedings without any adverse action;
  • ii. Cancel the Certificate of registration;
  • iii. Suspend the Certificate of registration;
  • iv. Prohibit the Portfolio Manager from taking up any new assignment or contract or launching a new scheme;
  • v. Debar an officer of Portfolio Manager from being employed or associated with any registered intermediary or other person associated with the securities market for a specified period;
  • vi. Debar a branch or an office of Portfolio Manager from carrying out such activities for a specified period;
  • vii. Issue a regulatory censure to the Portfolio Manager. After 5 regulatory censures, the registration of a Portfolio Manager may be cancelled, suspended or prohibited from taking up any new assignment.