SEBI introduced the new SEBI (Portfolio Managers) Regulations, 2020, effective from January 16, 2020, repealing the old 1993 regulations.
Subsequently, SEBI issued guidelines for Portfolio Managers on February 13, 2020. However, due to Covid-19 pandemic, the guidelines became applicable only from October 1, 2020.
These guidelines introduced changes to the regulatory framework for Portfolio Managers with respect to fees and charges, direct on-boarding of clients, investment approach and periodic reporting by Portfolio Managers.
As soon as you get registered with SEBI, various compliance and reporting requirements to SEBI become applicable. Most of them are due after the end of the financial year.
In this article, I cover the periodic reporting to be done by the Portfolio Manager (as an entity) to SEBI.
#1 – Improvement in Corporate Governance
SEBI issued a circular on November 18, 2003 on Improvement in Corporate Governance. As per the circular:
- Portfolio Managers have to disclose performance of benchmark indices in the period reports to clients.
- Compliance officer should report to the Board of Directors of the Portfolio Manager about the compliance of the PMS regulations.
- Board of the portfolio manager should also review redressal of investors’ grievances.
- Any deficiency letters or warning letters issued to the portfolio managers by SEBI should also be placed before the Board of the portfolio manager
- An internal audit needs to be conducted by a practising CS or CA so as to judge the quality of internal procedures being followed by the portfolio manager. The internal audit report has to be submitted to the Board of the portfolio manager.
- The portfolio manager needs to exercise due diligence in all their operational activities
The Portfolio Manager is required to report to SEBI on compliance of the above mentioned guidelines within 30 days from the end of a financial year.
#2 – Net Worth Certification
Portfolio Manager is required to submit to SEBI, a certificate from the qualified Chartered Accountant certifying the net-worth as on March 31, every year, based on audited financials within 6 months from the end of a financial year. The definition of the net worth is given in the PMS regulations, 2020.
#3 – Certificate by Principal officer
The Principal Officer of the Portfolio Manager has to submit a duly signed certificate of compliance with PMS Regulations and circulars issued by SEBI within 60 days from the end of a financial year.
The certificate should also contain details of non-compliance along with the corrective actions, if any, duly approved by the Board of the portfolio manager.
There is no format specified by SEBI for the said certificate.
#4 – Monthly reporting on SEBI’s portal
Portfolio Manager has to submit a monthly report regarding their portfolio management activity, on SEBI Intermediaries Portal within 7 working days from the end of each month.
With effect from January 2021, SEBI modified the format of the monthly report. Click here to view the latest format of the report.
#5 – Quarterly reporting to clients
Portfolio Manager has to provide a quarterly report to the clients giving details of their portfolio, performance of the portfolio, details of investments during the quarter, etc.
However, SEBI has not mentioned the number of days within which the report should be submitted to clients. The best practice is to submit the report as soon as the quarter ends.
Click here to view the format of the quarterly report to client.
#6 – Reporting of Performance
Portfolio Manager has to report its performance in the disclosure document. The performance of a discretionary portfolio manager to be calculated using ‘Time Weighted Rate of Return’ for the immediately preceding three years.
SEBI issued following guidelines on the calculation of the performance:
- All cash holdings and investments in liquid funds to be considered
- Performance data to be reported net of all fees, expenses and taxes
- Any change in investment approach that may impact the performance of client portfolio to be disclosed
Portfolio Manager has to ensure that performance reported in the disclosure document, all marketing material and website of the Portfolio Manager is the same as that reported to SEBI.
The firm-level performance data of Portfolio Managers has to be audited annually and reported to SEBI within 60 days from the end of a financial year.
#7 – Material changes in Disclosure Document
A copy of the Disclosure Document has to be filed with SEBI whenever there is any material change.
Material change includes change in control of the Portfolio Manager, Principal Officer, fees charged, charges associated with the services offered, investment approaches offered (along with the impact of any changes) and such other changes as specified by SEBI from time to time.
The disclosure document with the material change has to be filed with SEBI within 7 working days from the date of the change.
All in all, quite a bit of work.
Here is the summary of the period reporting by the portfolio manager-
Except for the monthly reporting on the SEBI’s portal, all the reports have to be sent to SEBI’s email id – sebipms@sebi.gov.in. You can also add the email id of the dealing officer of SEBI, if you are aware of.
If you are looking for professional help in making an application to SEBI or guidance for ongoing compliance, you can write to me at kruti@cskruti.com.