Portfolio managers cannot impose lock-in period for clients’ investments: Sebi

By: |
August 25, 2020 10:44 PM

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.

However, no upfront fees will be charged by the portfolio manager directly or indirectly to the client, the regulator said in a detailed set of Frequently Asked Questions (FAQs) on portfolio managers.

Markets regulator Sebi on Tuesday said portfolio managers cannot impose a lock-in period for investments of their clients but can charge fee for early exits.

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.

The watchdog said portfolio manager will charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount or a performance-based fee or a combination of both.

However, no upfront fees will be charged by the portfolio manager directly or indirectly to the client, the regulator said in a detailed set of Frequently Asked Questions (FAQs) on portfolio managers.

Further, Sebi said the agreement between a portfolio manager and a client will also include the quantum and the manner of fee payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly.

“Portfolio managers cannot impose a lock-in on the investment of their clients. However, a portfolio manager can charge applicable exit fees from the client for early exit,” Sebi noted.

Under the norms, portfolio managers are required to have a minimum net worth of Rs 5 crore.
Such a manager is required to accept minimum Rs 50 lakh or securities having a minimum worth of Rs 50 lakh from the client for opening a PMS (Portfolio Management Services) account.

In respect of withdrawal of portfolios, Sebi said a client may withdraw partial amounts from his portfolio, in accordance with the terms of the agreement between the client and the portfolio manager. However, the value of investment in the portfolio after such withdrawal will not be less than the applicable minimum investment amount.

According to Sebi, portfolio managers are not required to take prior approval from the regulator in case of changes in status or constitution or control.

However, such managers will have to inform Sebi of any proposed material change, including change in status or constitution or control, which may have a bearing on the registration.

They need to submit such information to the regulator at least 30 days prior to such changes or as and when the decision for such changes is approved by the directors or partners, as per Sebi.

Also, the regulator said there is no restriction imposed on the number of non-associate stock brokers, depository participants or custodians that may be engaged by a portfolio manager.

“The portfolio manager may utilise a single non-associate stock broker for executing 100 per cent of the trades on behalf of its clients,” it added.

With regard to limits on transactions executed through associates of portfolio managers, Sebi said charges for all transactions in a financial year through self or associates will be capped at 20 per cent by value per associate, including self, per service.

Such limits will apply separately for demat services, custodian services among others, it added.

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