In a welcome move, Portfolio Managers have been given a 3-month additional extension to comply with new norms relating to fees and charges, direct client on-boarding, nomenclature of ‘investment approach’, performance reporting, documents disclosure etc.
The first deadline was May 1, after which SEBI had extended the implementation date to July 1.
"In light of market events due to CoVID-19 pandemic, SEBI, videCircular No. SEBI/HO/IMD/DF1/CIR/P/2020/57 dated March 30, 2020 extended, inter alia, the timeline for applicability of SEBI Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/26 dated February 13, 2020 on ‘Guidelines for Portfolio Managers’. After taking into consideration requests received from portfolio managers and the prevailing business and market conditions, it has been decided to extend the timeline for compliance with the requirements of SEBI Circular....by further three months. Accordingly, the provisions of said SEBI Circular shall be applicable with effect from October 01, 2020," said a SEBI circular dated June 29, 2020. (SEBI Link to download circular)
SEBI in the second week of February had announced wide-ranging reforms, which would make the PMS industry even more transparent, more customer-friendly and even go ahead of emerging market peers.
From October 1, 2020, no upfront fees can be charged by the Portfolio Managers, either directly or indirectly, to the clients. Operating expenses excluding brokerage, over and above the fees charged for Portfolio Management Service, will not exceed 0.50% per annum of the client’s average daily assets under Management (AUM). In case client portfolio is redeemed in part or full, the exit load charged will be charged in a graded manner as per year of exit (1% to 3% depending on the year). After a period of three years from the date of investment, there would be no exit load, as per SEBI norms. However, there are PMSes not charging any exit load.
Also, charges for all transactions in a financial year (Brokerage, Demat, custody etc.) through self or associates will be be capped at 20% by value per associate (including self) per service. SEBI directed that any charges to self/associate cannot be at rates more than that paid to the non-associates providing the same service.
Like direct plans of mutual funds, PMS will also have to allow direct on-boarding of clients. Portfolio Managers would have to provide an option to clients to be on-boarded directly, without inter-mediation of persons engaged in distribution services. SEBI directed Portfolio Managers to prominently disclose in its disclosure documents, marketing material and on its website, about the option for direct on-boarding. At the time of on-boarding of clients directly, no charges except statutory charges can be levied.
Streamlining investment approach nomenclature, from October 1, the information about investment approaches offered by Portfolio Managers will have to be uniform across all types of regulatory reporting, client reporting, disclosure document, marketing materials and any such document which refer to services offered by Portfolio Managers Importantly, any description of investment approach provided by Portfolio Managers will have to include investment objective, description of types of securities e.g. equity or debt, listed or unlisted, convertible instruments, etc., basis of selection of such types of securities as part of the investment approach etc. Also, the investment approach of PMS will have information on allocation of portfolio across types of securities, appropriate benchmark to compare performance and basis for choice of benchmark, indicative tenure or investment horizon etc.
In periodic reporting compliance by Portfolio Managers, with effect from Financial Year 2019-20, Portfolio Managers to the Board will submit a certificate from the qualified Chartered Accountant certifying the net-worth as on March 31, every year based on audited account within 6 months from the end of Financial Year. They would also give a certificate of compliance with PMS regulations and SEBI circulars signed by the Principal Officer, within 60 days of end of each financial year. Further, details of any non-compliance along with the corrective actions, if any, duly approved by Board of the portfolio manager would need to be submitted.
Portfolio Managers from October 1 will have to submit a monthly regarding their portfolio management activity, on SEBI Intermediaries portal within 7 working days of the end of each month, as the revised format. Portfolio Managers will also have to furnish a report in a given format to their clients on a quarterly basis.
Importantly, SEBI had directed Portfolio Managers to consider all cash holdings and investments in liquid funds, for calculation of performance. Reporting of performance data would have to net of all fees and all expenses, including taxes.
Further, PMS shops would have to ensure that performance reported in all marketing material and website of the Portfolio Manager is the same as that reported to SEBI. The aggregate performance of the Portfolio Manager (firm-level performance) reported in any document will have to be same as the combined performance of all the portfolios managed by the Portfolio Manager.
This apart, there will be norms for disclosure documents for material and supervision of distributors .
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