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Streamlining Portfolio Manager Operations: Enhancing Digital Onboarding and Transparency

The circular issued by Securities Exchange Board of India (SEBI) pertains to measures aimed at simplifying and easing compliance procedures for Portfolio Managers (PMs) under SEBI (Portfolio Managers) Regulations, 2020. A working group was formed to review the existing regulatory framework for PMs and recommend measures to promote ease of doing business. Following the recommendations of this group and subsequent public consultations, several decisions have been made:

a. Onboarding Process: Regulation 22(1) of SEBI (Portfolio Managers) Regulations, 2020, requires PMs to enter into a written agreement with clients before managing their funds. PMs are required to ensure that clients sign the annexure on fees and charges and acknowledge their understanding of the fee structure, whether onboarding is done physically or digitally.


b. Fee Calculation Tool: PMs must provide a fee calculation tool to clients, highlighting various fee options and incorporating the high watermark principle where applicable. New clients onboarded after October 01, 2024, must be provided with a link to access this tool in advance.


c. Additional Fees Disclosures: The annexure on fees and charges to the PMs-client agreement must include fee illustrations that cover different scenarios viz. increase in the portfolio  value  by a certain  percentage,  decrease  in the portfolio value by a certain percentage and when the portfolio value remains unchanged and the application of the high watermark principle. Standard formats for these illustrations will be specified by the Association of Portfolio Managers of India (APMI) in consultation with SEBI.


Further, modifications to the periodic report format required by portfolio managers to be provided to clients. Specifically:


  • PMs must now include an annexure detailing fee calculations alongside the periodic report, as outlined in Annexure 5D of the Master Circular.

  • This requirement becomes effective from October 01, 2024.

  • The standard format for this annexure detailing fee calculations will be determined by the APMI in consultation with the SEBI.


d. Most Important Terms and Conditions (MITC) Document: PMs are required to provide clients with a MITC document, understanding the critical aspects of the PM-client relationship. Further MITC document shall be duly acknowledged by the client. Compliance with this requirement is mandatory for new clients onboarded after October 01, 2024, and existing clients must be informed of the MITC via email or other suitable modes of communication by January 01, 2025.

PMs must ensure that no additional fees and charges are levied beyond those specified in the annexure to the PMs-client agreement.

The circular will come into effect from October 01, 2024. APMI will issue standard procedures and formats mentioned in the circular by July 31, 2024.


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