What is the Disclosure Mechanism Specified for Portfolio Manager (PM)

Narendra Kumar

30 May, 2019

SEBI (Portfolio Managers) Regulations,1993 has prescribed certain disclosures to be disclosed by the PM company to enable its clients to have complete information about the company they plan to work with What is the Disclosure Mechanism for Portfolio Manager (PM).

The PM Company has to give this information to the prospective client along with the account opening form (as per Format I) at least two days in advance of the signing of the agreement.

It is mandatory that such Disclosure Document is to be filed with the Board (SEBI) before it is circulated or issued to any person and every six months thereafter it is to be revised.

The model Disclosure Document specifies the minimum disclosure requirements and they should be complete, accurate not misleading and material for the investors of the company. It should show all the necessary information without hiding as such.

Model Disclosure Document for Portfolio Management

The minimum disclosures to be given in the Disclosure Document shall be in the simple language, clear, concise and easy to understand by the client.

1. The front page of Document is like

(I) It must show that this Document has been filed with the Board along with the certificate in the specified format under Regulation 14 of the SEBI (Portfolio Managers) Regulations,1993.

(ii)The purpose of this Document is to furnish essential information about the portfolio services so that the investors are able to make an informed decision for engaging a Portfolio Manager.

(iii)The document must show the necessary information about the Portfolio Manager needed by an investor before investing with such PM and even for future reference.

(iv) It must state and confirm that all the interagents involved in the scheme are registered with SEBI as on the date of the document.

(v) Complete information like the name, phone number, e-mail address of the principal officer so designated by the PM must be depicted.

1. II. Index page giving item number, contents and page number for each information

III. Contents of the Document:

1) Disclaimer Clause 

A statement confirming that all the particulars have been compiled in accordance with the SEBI (Portfolio Managers) Regulations,1993 and same has been filed with SEBI. Portfolio Manager Further, to mention that the Document has neither been approved or disapproved by SEBI nor has SEBI certified the accuracy or adequacy of the contents of the Document prepared by PM.

2) Definitions of various terms in the document:

All terms used in the Disclosure Document be properly defined and the language and terminology shall be as provided in the Regulations. It should clearly define any new term if used. All terms shall be used uniformly throughout the text of the Disclosure Document.

3) Description:

(i)  It must show the history of PM, present business and background of the PM

(ii) It must show the details of the promoters, directors and their background

(iii) Details about top 10 Group companies/firms of the Portfolio Manager on the turnover basis (on the basis of latest audited financial statements)

(iv)Details of the services being offered by PM: Discretionary/ Non-discretionary / Advisory.

4) Information in respect of any penalties, pending litigation or proceedings, findings of inspection or investigations for which action may have been taken or initiated by any regulatory authority against PM.

5)  Services Offered:

(I)  The document shall show the present investment objectives and policies including the types of securities in which PM generally invests shall be clearly and concisely stated in the document to facilitate understanding of the potential investor.

(ii) The document shall show the policies of PM for investments in associates/ group companies of the PM and the maximum percentage of such investments therein subject to the applicable laws/regulations/ guidelines.

    6)  Risk factors:

(i)The document shall contain a statement to the effect that securities investments are subject to market risk and further there is no assurance or guarantee by PM that the objectives of the scheme will be attained.

(ii) It should clearly state that past performance of the PM does not indicate the future performance of the same scheme in future or any other future schemes proposed by the PM.

(iii) To mention clearly the risk arising from the investment objective, investment

strategy and asset allocation of PM.

(iv) To indicate the risk arising out of non-diversification, if any.

(v) If the PM has no previous experience/ track record, a

disclosure to the effect should be made by PM.

7) (I) It should mention details about the client representation such as the category of client, no. of clients, a fund managed (amount) and if discretionary or non-discretionary etc.

 (ii) It should give complete disclosure in respect of transactions with related parties as per the relevant standards prescribed by the Institute of Chartered Accountants of India (ICAI).

 8) It should disclose the financial performance of the PM (based on audited financial

statements)

9) It must show the performance of the PM for the last three years.

10)It must show the nature of expenses like

(i)Investment management and advisory fees

(ii)Custodian fee

(iii) Registrar and transfer agent fee

(iv)Brokerage and transaction cost etc.

 A brief explanation shall be included to help the investor in understanding the various costs and expenses that he may have to bear directly or indirectly under the scheme.

11) Taxation –It should also disclose the implications of investments and the tax provisions on Income/ Loss or Tax Deduction at Source(TDS) on various investments.

12) Accounting policies– It should disclose the accounting policy followed while accounting for the portfolio investments of the clients.

13)  Further, it must disclose under Investors services

(i) Name, address and telephone number of the investor Relation Officer who shall attend to the investor queries and complaints.

(ii) Grievance redressal and dispute settlement mechanism adopted by the PM.

Such disclosure document should be dated and signed by the Directors of the PM company