PORTFOLIO MANAGER

PORTFOLIO MANAGER (Part 1)

• Definition: A portfolio manager is a body corporate that advises, directs, or undertakes the management of a portfolio of securities or funds on behalf of a client.
• Overview: Portfolio management involves selecting and managing a basket of assets to minimize risk and maximize return on investments.

Key Concepts

• Types of Portfolio Management Services:
  • Discretionary Services: The portfolio manager exercises discretion in investing the client's funds.
  • Non-Discretionary Services: The portfolio manager manages funds according to the client's directions.
  • Advisory Services: The portfolio manager provides non-binding investment advice.
• Structure of PMS in India: A portfolio manager is a body corporate that provides portfolio management services to clients.
• Registration Requirements: To act as a portfolio manager, obtaining a certificate of registration from SEBI is mandatory.
• Responsibilities of a Portfolio Manager:
  • Manage client funds individually and independently.
  • Act in a fiduciary capacity with regard to client funds.
  • Segregate each client's holdings in separate accounts.
  • Keep client funds in a separate account in a Scheduled Commercial Bank.
• Costs, Expenses, and Fees:
  • Fixed Cost: A fixed percentage of the amount managed or invested.
  • Performance Linked Costs: Additional fees paid to the PMS fund manager based on performance targets.
  • High Watermark Principle: Fees are calculated based on the corpus investment value or NAV at which fees have been paid historically.

Registration Requirements

• The application for registration must be made in Form A of Schedule I.
• The application requires detailed information, including:
  • Particulars of the applicant.
  • Organization structure.
  • Infrastructural facilities.
  • Business plan.
  • Financial information.
• The regulator considers factors such as:
  • The applicant's infrastructure and manpower.
  • The principal officer's professional qualification and experience.
  • The applicant's net worth requirement (five crore rupees).
  • Any disciplinary action taken against the applicant or its employees.

PORTFOLIO MANAGER (Part 2)

• Profit Sharing Fees: Calculated on the gains of the corpus invested, only if the current fund value is higher than the previous high water mark.
• Hurdle Rate: The rate that needs to be crossed for the PMS to charge extra fees to the investor, mentioned in the PMS agreement.
• Catch-up/No Catch-up Concept: Used for calculating fees, where the no catch-up concept considers only the gains above the hurdle rate, while the catch-up concept considers the full gains.
• Direct Access Facility: Allows investors to invest directly in PMS without intermediaries, reducing costs and increasing net returns.
• Role of Investment Advisers: Significant in empowering investors, guiding them in choosing between PMS and other instruments, and considering the suitability of direct access plans.
• SEBI Requirements: Portfolio managers must enter into a written agreement with clients, provide a disclosure document, and report performance uniformly to SEBI, clients, and on their website.

Key aspects of Direct Access Facility:

• Lower costs due to the absence of intermediaries
• Increased net returns for investors
• Available for investors who want to skip intermediaries and directly approach the PMS provider

Key aspects of SEBI Requirements:

• Written agreement between portfolio manager and client
• Disclosure document containing specified particulars, such as fees and portfolio risks
• Uniform performance reporting to SEBI, clients, and on the website
• Disclosure of the range of fees charged under various heads in the disclosure document

Key aspects of Investment Advisers:

• Guiding clients in choosing between PMS and other instruments
• Considering the suitability of direct access plans
• Helping clients save costs while getting the best services
• Advising on exposure to PMS and the type of plan (discretionary, non-discretionary, or advisory)