Sebi Guidelines For Portfolio Management

April 20, 2022
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Sebi Guidelines For Portfolio Management

SEBI (Securities and Exchange Board of India) is the regulatory authority for the securities market in India. SEBI is responsible for registering and regulating the activities of various participants, including the portfolio managers, in the securities market.

SEBI has issued separate guidelines for registration of mutual funds and portfolio managers.

SEBI Guidelines for Portfolio Management Services

A Portfolio Manager is allowed to manage the portfolio of individual clients, corporate clients, trusts or a body corporate.

A Portfolio Manager can not float any scheme for investment by the general public or invite any person to subscribe for the securities offered under a scheme.

SEBI Guidelines – Functions of the Portfolio Manager:

Portfolio manager functions are as follows:

  1. To exercise investment discretion on behalf of the client as per the agreed terms and conditions between the portfolio manager and the client.

  2. To take investment decisions on behalf of the client with respect to transactions in securities in accordance with the instructions, guidelines and policies provided by the client to the portfolio manager.

  3. To carry out all administrative and operational procedures in relation to investments so made on behalf of clients including but not limited to making applications, allotments, withdrawals etc.

  4. To periodically furnish to its clients a statement of account showing details like opening balance, investments made/sold/transferred during a particular period, income accrued thereon, expenses incurred and closing balance after taking into account all receipts and payments during that period along with a copy of contract note(s) relating to sale/purchase.

Guidelines for Portfolio Managers

As per Sebi the definition of Portfolio Manager is given below:

“Portfolio managers are individuals who, for compensation or gain, engage in the business of advising others, either directly or through publications or writings, as to the value of or the advisability of buying or selling portfolio securities.”

 

A portfolio manager generally manages a portfolio consisting of stocks and bonds. These managers also manage mutual funds and hedge funds. The portfolio manager basically invests client’s money in different securities such as loans, bonds and stocks. This service generally involves a fee which is paid by the clients to the portfolio manager. Sebi has issued guidelines for registration of Portfolio Managers under Regulation 3(1) of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.

Objectives of SEBI Portfolio Management System

The main objective of SEBI Portfolio Management System is to prevent the misuse of clients’ funds by portfolio managers. It ensures that portfolio managers are well-equipped with their portfolio management skills and their transactions are monitored regularly.

 

Another important objective of SEBI Portfolio Management System is to ensure transparency in the system.

These objectives can be achieved by:

  1. Setting up a proper regulatory framework for portfolio managers

  2. Imposing certain restrictions on the conduct of their business

Sebi guidelines for portfolio management:

 

  • Investment objective: The portfolio manager will seek to generate returns that are commensurate with the risk parameters as decided in consultation with the investor.

  • Risk parameters and investment strategy: The risk parameters and investment strategies are decided by the PMS provider in consultation with the client. This includes the type of securities, sector, industry, duration and exposure to market segment.

  • Portfolio diversification: The PMS will aim to reduce risk through diversification across asset class, security types, sectors and industries in line with Sebi regulations.

  • Valuation of securities: The valuation of securities will be done as per Sebi guidelines. It also depends on whether the investments are traded on an exchange or not.

  • Purchase of securities: The purchase of securities will be done as per Sebi regulations and guidelines issued by exchanges from time to time.

  • Margin trading facility

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