Market regulator the Securities and Exchange Board of India (Sebi) today asked portfolio managers not to circumvent rules and ensure that the minimum fund or security collected from a first-time client is Rs 5 lakh.
Certain portfolio managers have been accepting less than Rs 5 lakh in funds or securities from clients and opening accounts on the basis of a commitment that Rs 5 lakh would be brought in soon, the regulator said.
This is in contravention of Regulation 15 (1A) of the Sebi (Portfolio Managers) Regulations, 1993.
"In order to bring about greater uniformity, clarity and transparency... Portfolio managers are advised to ensure... that the first single investment amount received as funds or securities from clients should not be less than Rs 5 lakh," it said in a circular.
Currently, high net-worth individuals (HNIs) invest money through portfolio management firms. Sebi's rules define HNIs as investors that invest up to Rs 5 lakh and more.
The market regulator has asked the managers to disclose the performance of their clients' portfolios during the past three years.
"Portfolio managers shall ensure that the disclosure document is given to all clients along with the account opening form at least two days in advance of signing of the agreement," it said.
The Sebi has also asked the portfolio managers not to term their investment portfolios as 'schemes' while marketing them to clients.
Portfolio management service providers offer services similar to venture capital funds and hedge funds. A portfolio manager usually advises or undertakes the management and administration of a portfolio of securities or funds on behalf of the client.
