Regulation
In this chapter: SEBI PMS Regulations · Onboarding, KYC, AML, fee disclosure
SEBI Portfolio Managers Regulations 1993 (with periodic amendments) govern PMS. Key requirements: registration with SEBI, principal officer NISM 21A, minimum net worth, segregated client funds, mandatory disclosure of fees and conflicts, periodic reporting. AML and KYC follow standard SEBI/RBI norms.
Registration: PMS firm must be SEBI-registered, with principal officer + one investment-decision-maker, both NISM 21A certified. Net worth: ₹5 crore (currently). Onboarding: signed agreement specifying mandate, fees, performance benchmark, lock-in (if any), exit process. KYC and AML: PAN, Aadhaar, in-person verification (or digital equivalent), source-of-funds declaration. Fee disclosure: must specify fixed + performance fees, hurdle rate, high-water-mark structure. Reporting: monthly statements, quarterly reviews, annual audit reports. SEBI inspections check for adherence.
A 2020-25 evolution: SEBI has tightened performance-fee structures. Many PMS used to charge 2% + 20% above 0% hurdle (i.e., share of any positive return). SEBI now requires high-water-mark and reasonable hurdle (typically 8-10%). Also: post-2020, clients can move from one PMS to another with portability (the existing portfolio transferred), reducing exit friction. PMS firms must accommodate this.