India - SEBI Extension Of Implementation Of The Portfolio Managers Guidelines And Update On 2020 Portfolio Managers Regulations.

Legal News & Analysis - Asia Pacific - India - Regulatory & Compliance

20 July 2020


In light of the market events on account of the COVID-19 pandemic, requests from portfolio managers (PM) and the prevailing business and market conditions, SEBI has, by its Circular dated June 29, 2020, further extended the timeline to implement the Guidelines prescribed by it for PMs under its Circular dated February 13, 2020 (PM Guidelines). PMs will now be required to comply with the PM Guidelines from October 1, 2020.
SEBI had, on January 16, 2020, notified the SEBI (Portfolio Managers) Regulations, 2020 which replaced the erstwhile SEBI (Portfolio Managers) Regulations, 1993 (1993 Regulations) in its entirety, thereby bringing significant changes to the portfolio management space. In addition to the 2020 Regulations, SEBI also issued a Circular on February 13, 2020 prescribing the PM Guidelines, implementation of which has now been extended from May 1, 2020 to October 1, 2020.
Set out below is an overview of the key aspects and changes sought to be brought about by the 2020 Regulations and the PM Guidelines:



  • Revision in the net-worth requirement of a PM

    Under the 1993 Regulations, every PM was required to have a net worth of ₹ 20,000,000 (approx. US $ 267,000).



  • Revisions relating to minimum investment amount from clients

    The minimum investment amount (by way of funds and/or securities) which can be accepted by the PM from its client has been increased from ₹ 2,500,000 (approx. US $ 33,300) under the 1993 Regulations to ₹ 5,000,000 (approx. US $ 66,700) under the 2020 Regulations.



  • Revised requirements relating to the principal officer of the PM

    Under the 1993 Regulations, the principal officer (PO) could have been any employee who was designated as the principal officer by the PM. Under the 2020 Regulations, in addition to these requirements, the definition of PO also specifies that the PO would be responsible for



  • Revised requirements relating to the Compliance Officer of the PM

    PMs are now required to appoint a compliance officer at the time of applying to SEBI for grant of registration as a PM. It is also clarified that the role of compliance officer cannot be assigned to the PO or the additional employee of the PM.



  • Revised requirements relating to the additional employee of the PM

    Under the 1993 Regulations, the PM was required to have in its employment minimum two persons who, between them, had atleast 5 years of experience in specified areas.



  • Introduction of “investment approach” offered by PM

    SEBI has introduced a new concept of “investment approach” offered by the PM, details of which are required to be covered in any documentation issued by the PM.



  • Revised requirements for the PM Agreement with clients

    Under the 2020 Regulations, provisions relating to ‘investment approach’ must now be included in the PM agreement with clients. Further, the PM agreement must provide for the specified period of the agreement



  • Revised requirements relating to the Disclosure Document

    Under the 1993 Regulations, the PM was required to provide a copy of the Disclosure Document to the client two days prior to execution of the PM agreement. Under the 2020 Regulations, the Disclosure Document can now be shared with the client at the time execution of the PM agreement.



  • Revised permissible investments by PMs

Under the 2020 Regulations, every PM must follow these additional investment related restrictions:

•     segregate each client’s holding in securities in separate accounts,



  • Fees and Expenses

SEBI has under the PM Guidelines (implementation of which has been extended to October 1, 2020) made certain partial modification to its Circular dated October 05, 2010 (2010 Circular) on Regulation of Fees and Charges, and mandated the following:
(i)    no upfront fees shall be charged by the PM, either directly or indirectly, to the clients;



  • Requirements relating to PMs availing services of Distributors

SEBI has under the 2020 Regulations provided that the PM is required to ensure that any person or entity involved in the distribution of its services is carrying out the distribution activities in compliance with the 2020 Regulations and circulars issued thereunder from time to time.



  • Revisions in periodic reportings by PMs to clients and SEBI

PMs are now required to furnish a report to clients regarding details of their portfolio every three months (as opposed to six months earlier). Such reports are also required to provide details relating to



  • Change in the definition of ‘change of status or constitution’ of a PM

Under the 1993 Regulations, there was a specific requirement under the ‘Conditions of Registration’ section for a PM to obtain prior approval of SEBI if it proposes to change its status or constitution



  • Change in the definition of “change of control” of a PM

As under the 1993 Regulations, even the 2020 Regulations defines ‘change of control’ of unlisted companies to mean change in controlling interest in a body corporate.



  • Other changes

Under the 1993 Regulations, prior approval of SEBI was required when there was a change in the status or constitution of the PM. Under the 2020 Regulations, the PM is only required to inform SEBI



  • Appointment of custodians

Under the 1993 Regulations, a PM, who had total assets under management of value less than ₹ 5,000,000,000 (approx. US $ 66.7 million) or who performed only advisory services




For further information, please contact:


Zia Mody, Partner, AZB & Partners