Portfolio means a collection of securities owned by an investor. It represents the total holdings of securities belonging to any person

" Portfolio Manager"
means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be.

"A discretionary portfolio manager"
means a portfolio manager who exercises or may, under a contract relating to portfolio management, exercises any degree of discretion as to the investments or management of the portfolio of securities or the funds of the client, as the case may be.

The eligibility criteria for Registration and other regulations governing Portfolio Managers are governed under SEBI (Portfolio Managers) Rules, 1993 and SEBI Portfolio Managers) Regulations, 1993

No person shall carry on any activity as a portfolio manager unless he holds a certificate granted by the Board under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993. However a merchant banker holding a certificate granted by the Board under the Securities and Exchange Board of India (Merchant Banker) Regulations, 1992 as category I or category II merchant banker may act as a portfolio manager simultaneously subject to the regulations governing to Portfolio Managers.

The Board may grant or renew a certificate to a portfolio manager subject to the following conditions, namely :

1. the portfolio manager in case of any change in its status and constitution, shall obtain the prior permission of the Board to carry on its activities;

2. he shall pay the amount of fees for registration or renewal, as the case may be, in the manner provided in the regulations; The fees provided under tghe Regulations for the Registration of a Portfolio is Rs.5 Lakhs.

3. he shall take adequate steps for redressal of grievances of the clients within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received;

4. he shall abide by the rules and regulations made under the Act in respect of the activities carried on by the portfolio manager.

1. For considering the grant of certificate of registration to the applicant, the Board shall take into account all matters which it deems relevant to the activities relating to portfolio management.

2. Without prejudice to the generality of the foregoing provisions, the Board shall consider whether -

   1. the applicant is a body corporate;

   2. the applicant has the necessary infrastructure like adequate office space, equipments and the manpower to effectively discharge the activities of a portfolio manager;

   3. the principal officer of the applicant has the professional qualifications in finance, law, accountancy or business management from an institution recognised by the Government;

   4. the applicant has in its employment minimum of two persons who, between them, have at least five years experience as portfolio manager or stock broker or investment manager or in the areas related to fund management;

   5. any previous application for grant of certificate made by any person directly or indirectly connected with the applicant has been rejected by the Board;

   6. any disciplinary action has been taken by the Board against a person directly or indirectly connected with the applicant under the Act or the Rules or the Regulations made thereunder;

   7. Explanation - For the purposes of sub-clauses (e) and (f), the expression " person directly or indirectly connected" means any person being an associate, subsidiary, inter connected company or a company under the same management within the meaning of section 370(1B) of the Companies Act,1956 or in the same group;

   8. the applicant fulfills the capital adequacy requirements specified in regulation 7

   9. the applicant, its director, principal officer or the employee as specified in clause (d) is involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant;

   10. the applicant, its director, principal officer or the employee as specified in clause (d) has at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence;

   11. the applicant is a fit and proper person;

   12. grant of certificate to the applicant is in the interests of investors."

The capital adequacy requirement referred to in clause (g) of regulation 6 shall not be less than the networth of fifty lacs rupees;

Explanation: For the purposes of this regulation, "networth" means the aggregate value of paid up equity capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off."

Every Portfolio Manager shall abide by the Code of Conduct prescribed for him under the Regulations

1. The portfolio manager shall, before taking up an assignment of management of funds or portfolio of securities on behalf of a client, enter into an agreement in writing with such client clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to the management of funds or portfolio of securities containing the details as specified in Schedule IV.

2. The agreement between the portfolio manager and the client shall, inter alia, contain:

   1. the investment objectives and the services to be provided;

   2. areas of investment and restrictions, if any, imposed by the client with regard to the investment in a particular company or industry ;

   3. type of instruments and proportion of exposure;

   4. tenure of portfolio investments;

   5. terms for early withdrawal of funds or securities by the clients;

   6. attendant risks involved in the management of the portfolio;

   7. period of the contract and provision of early termination, if any;

   8. amount to be invested subject to the restrictions provided under these regulations;

   9. procedure of settling client's account including form of repayment on maturity or early termination of contract;

   10. fees payable to the portfolio manager;

   11. the quantum and manner of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly ( where such service is out sourced);

   12. custody of securities;

   13. in case of a discretionary portfolio manager a condition that the liability of a client shall not exceed his investment with the portfolio manager;

   14. the terms of accounts and audit and furnishing of the reports to the clients as per the provisions of these regulations; and

   15. other terms of portfolio investment subject to these regulations

Regulation 14.2

1. The portfolio manager shall provide to the client, the Disclosure Document as specified in Schedule V, along with a certificate in Form C as specified in Schedule I , at least two days prior to entering into an agreement with the client as referred to in sub- regulation (1).

2. The Disclosure Document, shall inter alia contain the following -

   1. the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly ( where such service is out sourced);

   2. portfolio risks;

   3. complete disclosures in respect of transactions with related parties as per the accounting standards specified by the Institute of Chartered Accountants of India in this regard;

   4. the performance of the portfolio manager;

           Provided that the performance of a discretionary portfolio manager shall be calculated using weighted average method taking each individual category of investments for the immediately preceding three years and in such cases performance indicators shall also be disclosed.

   5. the audited financial statements of the portfolio manager for the immediately preceding three years.

3. The contents of the Disclosure Document shall be certified by an independent chartered accountant.

4. The portfolio manager shall file with the Board, a copy of the Disclosure Document before it is circulated or issued to any person and every six months thereafter or whenever any material change is effected therein whichever is earlier, along with the certificate in Form C as specified in Schedule I.

Regulation 14.3

1. The portfolio manager shall charge an agreed fee from the clients for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and the fee so charged may be a fixed fee or a return based fee or a combination of both.

2. The portfolio manager may, subject to the disclosure in terms of the Disclosure Document and specific permission from the client, charge such fees from the client for each activity for which service is rendered by the portfolio manager directly or indirectly (where such service is out sourced)."

1. The discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client in a manner which does not partake character of a Mutual Fund, whereas the non- discretionary portfolio manager shall manage the funds in accordance with the directions of the client.

1. A) The portfolio manager shall not accept from the client, funds or securities worth less than five lacs rupees.

2. The portfolio manager shall act in a fiduciary capacity with regard to the client's funds.

2. A) The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank.

3. The portfolio manager shall transact in securities within the limitation placed by the client himself with regard to dealing in securities under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934);

4. The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities.

4. A) The portfolio manager shall not borrow funds or securities on behalf of the client.

5. The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided under these regulations.

The portfolio manager shall ensure proper and timely handling of complaints from his clients and take prompt action

1. Clients' money to be invested as per agreement with the client

   1. The money or securities accepted by the portfolio manager shall not be invested or managed by the portfolio manager except in terms of the agreement between the portfolio manager and the client,

   2. Any renewal of portfolio fund on maturity of the initial period shall be deemed as a fresh placement

2. Notwithstanding anything contained in the agreement referred to in regulation 14, the funds or securities can be withdrawn or taken back by the client before the maturity of the contract under the following circumstances, namely -[Regulation16 (2)]

   1. voluntary or compulsory termination of portfolio management services by the portfolio manager or the client.

   2. suspension or cancellation of the certificate of registration of the portfolio manager by the Board.

   3. bankruptcy or liquidation of the portfolio manager.

3. The portfolio manager shall invest funds of his clients in money market or derivatives instruments or as specified in the contract:[Regulation16 (3)]

       Provided that leveraging of portfolio shall not be permitted in respect of investment in derivatives."

       Provided further that the portfolio manager shall not deploy the clients' funds in bill discounting, badla financing or for the purpose of lending or placement with corporate or non- corporate bodies

   Explanation: For the purposes of this sub- regulation: "money market instruments" includes commercial paper, trade bill, treasury bills, certificate of deposit and usance bills;

4. The portfolio manager shall not while dealing with clients' funds indulge in speculative transactions that is, he 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." (5) The portfolio manager shall, ordinarily purchase or sell securities separately for each client. However, in the event of aggregation of purchases or sales for economy of scale, interse allocation shall be done on a prorata basis and at weighted average price of the day's transactions.[Regulation16 (4)]

5. The portfolio manager shall not keep any open position in respect of allocation of sales or purchases effected in a day.[Regulation16 (5)]

6. Any transaction of purchase or sale including that between the portfolio manager's own accounts and client's accounts or between two clients' accounts shall be at the prevailing market price[Regulation 16(6)]

7. The portfolio manager shall segregate each clients' funds and portfolio of securities and keep them separately from his own funds and securities and be responsible for safekeeping of clients' funds and securities[Regulation16 (7)]

8. The portfolio manager may hold the securities belonging to the portfolio account in its own name on behalf of his clients only if the contract so provides and in such an event the records of the portfolio manager and its report to the client should clearly indicate that the securities are held by it on behalf of the portfolio account. [Regulation16 (8)]

9. The portfolio manager may, subject to authorisation by the client in writing, participate in securities lending.[Regulation16 (9)]

10. That the portfolio manager may manage funds raised or collected or brought from outside Inside in accordance with the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995[Regulation16 (16A)]