Portfolio managers must provide disclosure document before agreement: Sebi

Portfolio managers need to provide disclosure document, comprising quantum and manner of payment of fees payable for each activity, to clients before entering into an agreement with them, Sebi said

Portfolio managers need to provide disclosure document, comprising quantum and manner of payment of fees payable for each activity, to clients before entering into an agreement with them, markets regulator Sebi has said.

A portfolio manager is a body corporate, which pursuant to a contract with a client, advises or directs or undertakes on behalf of the client the management of a portfolio of securities or funds.

In a detailed set of Frequently Asked Questions (FAQs) on portfolio managers, Sebi said the disclosure document contains the quantum and manner of payment of fees payable by the client for each activity, portfolio risks and complete disclosures in respect of transactions with related parties.

In addition, performance and the audited financial statements of the portfolio manager for the immediately preceding three years need to be disclosed in disclosure document, it added.

"The portfolio manager provides to the client the disclosure document prior to entering into an agreement with the client," the regulator said.

The Securities and Exchange Board of India (Sebi) said it does not approve any of the services offered by the portfolio manager.

It further said an investor has to invest in the services based on the terms and conditions laid out in the disclosure document and the agreement between the portfolio manager and the investor.

"Sebi also does not certify the accuracy or adequacy of the contents of the disclosure document," the regulator said.

Further, portfolio managers need to furnish periodically a report to clients, as per the agreement, but not exceeding a period of three months.

Such report will contain details about the composition and the value of the portfolio, description of securities and goods, number of securities, value of each security held in the portfolio, cash balance and aggregate value of the portfolio, Sebi said.

Further, the report will have to mention about risk foreseen by the portfolio manager and the risk relating to the securities recommended by such manager for investment, default in payment of coupons or any other default in payments in the underlying debt security and downgrading to default rating by the rating agencies, if any, the regulator said.

The report would also comprise of beneficial interest received during that period in the form of interest, dividend, bonus shares, rights shares; expenses incurred in managing the portfolio of the client; details of commission paid to distributor for the particular client.

"The services of a portfolio manager are governed by the agreement between the portfolio manager and the investor," Sebi said.