Sebi notifies portfolio managers norms; doubles investment limit to Rs 50 lakh

Markets regulator Sebi has notified norms governing portfolio managers, under which the minimum investment limit for investors has been doubled to Rs 50 lakh, and the managers have been directed to increase their net worth to Rs 5 crore within three years.

The move is part of Sebi's efforts to keep retail investors away from portfolio management schemes as well as to curb mis-selling and weed out non-serious players.

Portfolio Management Schemes (PMS) offer investors a range of specialised investment strategies to capitalise on opportunities in the market and make suitable to the needs of individual clients.

In a notification, the regulator said it has amended Sebi (Portfolio Managers) Regulations, to enhance the eligibility criteria and define the role of principal officer clearly.

Under the new norms, a portfolio manager needs to mandatorily employ minimum one person with defined eligibility criteria in addition to principal and compliance officer.

"The portfolio manager shall not accept from the client, funds or securities worth less than Rs 50 lakh," Sebi said adding existing investments of clients may continue as such till end date of PMS agreement or as specified by it.

Earlier, the minimum investment amount for investors in portfolio management schemes was Rs 25 lakh.

Further, the regulator has increased the networth requirement of portfolio managers to Rs 5 crore from Rs 2 crore and asked the existing portfolio managers to meet the enhanced requirement within 36 months.

The regulator further said discretionary portfolio managers will invest only in listed securities, money market instruments and mutual funds, on the other hand non discretionary managers can invest or provide advice for investment up to 25 per cent of the assets under management of such clients in unlisted securities.

"The portfolio manager shall not while dealing with clients' funds indulge in speculative transactions i.e, it shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives," Sebi said in a notification dated January 16.

It further said such manager will not deploy "the clients' funds in bill discounting, badla financing or for the purpose of lending or placement with corporate or non-corporate bodies...shall not invest the clients' funds in the portfolio managed or administered by another portfolio manager".

Sebi said portfolio manager while investing in units of mutual funds through direct plan will not charge any kind of distribution related fees to the client. Further, they have been barred from leveraging the portfolio of its clients for investment in derivatives.

The appointment of custodian will be mandatory for all portfolio managers, except for those providing only advisory service.