Role of Portfolio Managers – SEBI Registration | Responsibilities | Do’s and Don’ts

A portfolio manager is a body corporate which, under a contract or arrangement with a client, advises, directs or undertakes on that client's behalf the management or administration of a portfolio of securities or the client's funds. Portfolio managers are registered and regulated under the SEBI (Portfolio Managers) Regulations, 2020, and portfolio management services can be offered in India only by a SEBI-registered entity. Registration turns on eleven conditions, among them a net worth of ₹5 crore and a qualified Principal Officer, and the conduct of the business is governed by eleven general responsibilities, six Do's and thirteen Don'ts.

Table of Contents

1. Who is a Portfolio Manager?
2. The Three Types of Portfolio Management Services
3. What SEBI Requires Before Granting Registration
4. The Eleven General Responsibilities
5. Administering the Client’s Portfolio
6. Six Do’s and Thirteen Don’ts
7. Custodian, Records, Audit and Compliance Officer
8. Frequently Asked Questions

Check out NISM X Taxmann's Portfolio Management Services (PMS) Distributors, the official NISM workbook for the NISM-Series-XXI-A certification, in its September 2025 Workbook Version. Chapter 7 covers the role of portfolio managers in full, from the Form A registration particulars and the Principal Officer's qualification route to the Do's and Don'ts governing portfolio administration.

1. Who is a Portfolio Manager?

A portfolio manager is a body corporate which, pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of that client, whether as a discretionary portfolio manager or otherwise, the management or administration of a portfolio of securities or the client’s funds.

Two words in that definition carry weight. The first is body corporate, defined in Section 2(11) of the Companies Act, 2013. It covers a private company, a public company, a one person company, a small company, a limited liability partnership and a foreign company. It excludes a co-operative society registered under any law relating to co-operative societies, and any other body corporate, not being a company as defined in that Act, which the Central Government specifies by notification. An individual cannot be a portfolio manager.

The second is registered. Portfolio management services can be offered only by entities registered with SEBI under the Portfolio Managers Regulations, 2020.

The regime is older than most people assume. SEBI issued the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 in January 1993, among the first regulations the regulator made, and before the mutual fund regulations. In India the service is supplied mainly by large brokerage firms, asset management companies and independent experts.

2. The Three Types of Portfolio Management Services

The regulations classify services by the degree of discretion the manager holds. Three types follow, and the difference between them is the location of the investment decision.

	Discretionary	Non-discretionary	Advisory
Who decides what to buy or sell	The portfolio manager	The client	The client
Who executes	The portfolio manager	The portfolio manager	The client
Nature of the service	Investment management	Investment execution, not investment management	Non-binding investment advice
Typical user	Clients who want the mandate run for them	Clients who want to keep the decision	Institutional clients who run portfolios themselves and hire country expertise

A discretionary portfolio manager, in the words of the regulations, exercises or may exercise any degree of discretion as to the investment of funds or the management of the client’s portfolio. In practice that means managing each investor’s funds individually and independently, either on an existing investment approach the manager offers or on one customised to the client.

A non-discretionary manager has to consult the client on every transaction. What to buy or sell, and when, sits with the investor.

Services are also classified in two other ways. By provider: PMS by asset management companies, PMS by brokerage houses, and boutique or independent PMS houses. By product class: equity based, fixed income based, commodity, mutual fund and multi-asset. Managers may separately classify clients by net worth.

3. What SEBI Requires Before Granting Registration

A certificate of registration from SEBI is mandatory. The application goes in Form A of Schedule I, with a non-refundable fee, and Form A is detailed: particulars of the applicant, organisation structure with a chart showing functional responsibilities, particulars of every director or partner, key management personnel, promoters, the compliance officer and the Principal Officer including certification details, the number of employees engaged in portfolio management, associate companies, existing registrations with SEBI or any other regulator, major shareholders holding 5 per cent or more of voting rights, and a set of declarations covering fit and proper status, fees and charges, reporting to clients, and the availability of the Disclosure Document on the manager’s website.

Before issuing the certificate, the regulator satisfies itself on eleven points:

1. The applicant is a body corporate
2. It has the infrastructure to discharge the activities of a portfolio manager, meaning adequate office space, equipment and manpower
3. It has appointed a compliance officer
4. Its Principal Officer meets the qualification, experience and certification conditions set out below
5. Beyond the Principal Officer and the compliance officer, it employs at least one person with a graduate degree from a recognised university and at least two years of experience in related activities in the securities market, including in a portfolio manager, stock broker, investment adviser or as a fund manager
6. Whether SEBI has taken any disciplinary action against a person directly or indirectly connected with the applicant
7. The applicant meets the net worth requirement of ₹5 crore
8. Whether the applicant, its director, partner, principal officer, compliance officer or employee is involved in litigation connected with the securities market that bears adversely on the business
9. Whether any of those persons has been convicted of an offence involving moral turpitude or found guilty of an economic offence
10. The applicant is a fit and proper person
11. The grant of the certificate is in the interest of investors

Once granted, the certificate is valid unless SEBI suspends or cancels it. There is no periodic renewal.

3.1 The Principal Officer

The Principal Officer is the employee responsible for the decisions the portfolio manager makes in managing or administering client portfolios or funds, and for the overall supervision of the manager’s operations. Three conditions apply together.

Qualification. A professional qualification in finance, law, accountancy or business management from a university or institution recognised by the Central Government, a State Government or a foreign university. Alternatively, a Post Graduate Program in the Securities Market (Portfolio Management) from NISM of not less than one year. Alternatively, a CFA charter from the CFA Institute.

Experience. At least five years in related activities in the securities market, including in a portfolio manager, stock broker, investment adviser, research analyst or as a fund manager. At least two of those five years must be in portfolio management, investment advisory services, or areas related to fund management.

Certification. The relevant NISM certification as specified by SEBI from time to time. A fresh NISM certification has to be obtained before the existing one expires, so that compliance is continuous.

The same minimum qualification, experience and certification apply to any employee of the portfolio manager who holds decision-making authority related to fund management.

4. The Eleven General Responsibilities

The Portfolio Managers Regulations impose eleven general responsibilities. They are the spine of the relationship and worth knowing in order.

1. A discretionary portfolio manager manages the funds of each client individually and independently, according to that client’s needs, in a manner that does not take on the character of a mutual fund. A non-discretionary manager manages funds according to the client’s directions.
2. The manager cannot accept funds or securities worth less than fifty lakh rupees from a client.
3. The manager acts in a fiduciary capacity with regard to the client’s funds.
4. Each client’s holding in securities is segregated in a separate account.
5. Client funds are kept in a separate account maintained with a Scheduled Commercial Bank.
6. The manager transacts within the limits the client has placed on dealing in securities under the Reserve Bank of India Act, 1934.
7. The manager derives no direct or indirect benefit from client funds or securities.
8. The manager does not borrow funds or securities on the client’s behalf.
9. The manager does not lend securities held for clients to a third person, except as the regulations provide.
10. Complaints are handled properly and on time, with immediate action.
11. The manager ensures that any person or entity distributing its services carries out that distribution in compliance with the regulations and the circulars issued under them.

Two carve-outs sit under the second responsibility. The ₹50 lakh floor applies to new clients and to fresh investments by existing clients. It does not apply to an accredited investor, subject to appropriate disclosure in the Disclosure Document and the terms agreed between client and manager. It also does not apply to a co-investment portfolio manager.

The eleventh responsibility is the one distributors should read closely. Compliance in distribution is not only the distributor’s problem. The portfolio manager carries a regulatory duty to ensure it.

5. Administering the Client’s Portfolio

Two execution models are in common use. Pool execution means trading for all clients together and then allocating individual securities to each client’s demat account. The alternative is trading in the individual client’s name, where allocation happens automatically because the trade was placed that way.

Before taking up an assignment, the manager enters into a written agreement with the client. The agreement defines the relationship and sets out the mutual rights, liabilities and obligations in managing the portfolio.

5.1 The universe of securities

The agreement includes the investment approach: a broad outlay of the type of securities and permissible instruments the manager will invest in for that client, taking account of factors specific to the client and to the securities. It also records the areas of investment and any restrictions the client imposes on a particular company or industry. Defining the universe in the agreement is a regulatory requirement, not a courtesy.

5.2 Early withdrawal and exit load

A client can withdraw funds or securities before the contract matures, on the terms set out in the agreement. Those terms, including the withdrawal fee expressed both as a percentage and as an amount, must be in the agreement.

A portfolio manager cannot impose a lock-in on a client’s investment. What it can charge, under the PMS circular dated 13 February 2020, is a graded exit load when a portfolio is redeemed in part or in full:

Period from date of investment	Maximum exit load
First year	3% of the amount redeemed
Second year	2% of the amount redeemed
Third year	1% of the amount redeemed
After three years	Nil

The distinction matters at the point of sale. A client who is told their money is locked in for three years has been told something the regulations do not permit.

6. Six Do’s and Thirteen Don’ts

The portfolio manager abides by the SEBI Act, 1992 and the regulations made under it. Within that, the workbook sets out a short affirmative list and a much longer prohibitive one.

6.1 The Do’s

1. Redress investor grievances within one month of receiving the complaint, and keep SEBI informed of the number, nature and other particulars of complaints received
2. Abide by the Code of Conduct
3. Segregate each client’s holding in securities in separate accounts
4. Keep the funds of all clients in a separate account with a Scheduled Commercial Bank
5. Transact within the limits the client places on dealing in securities under the Reserve Bank of India Act, 1934
6. Segregate each client’s funds and portfolio of securities from the manager’s own, and take responsibility for safekeeping them

6.2 The Don’ts

1. Derive any direct or indirect benefit from the client’s funds or securities
2. Borrow funds or securities on the client’s behalf
3. Lend securities held for clients to a third person, except as the regulations provide
4. Invest or manage money or securities other than in terms of the agreement with the client
5. Charge any distribution related fee to the client when investing in mutual fund units through a direct plan
6. Use the client’s portfolio as leverage for investment in derivatives
7. Deploy client funds in bill discounting, badla financing, or lending or placement with corporate or non-corporate bodies
8. Invest client funds in a portfolio managed or administered by another portfolio manager
9. Invest client funds on the advice of any other entity
10. Indulge in speculative transactions with client funds, meaning any purchase or sale settled otherwise than by actual delivery or transfer of the security, derivatives excepted
11. Keep an open position on allocation of the day’s sales or purchases. Securities are ordinarily bought and sold separately for each client; where purchases or sales are aggregated for economy of scale, inter se allocation is done pro rata at the weighted average price of the day’s transactions
12. Hold securities belonging to the portfolio account in the manager’s own name on behalf of clients, whether by contract or otherwise
13. Execute off-market transfers in a client’s account, except to settle the client’s own trades, to provide margin or collateral for the client’s own positions, to deal in unlisted securities in accordance with the regulations, with the client’s specific consent for each transaction, or for any other reason SEBI specifies

The fifth prohibition is the one most often overlooked in a distribution conversation. Where the manager routes client money into mutual fund units through a direct plan, no distribution related fee may be charged to that client.

The current text of each of these provisions, with its amendment history and the circulars issued under it, is available on Taxmann.com | Research. Where a specific structure or a proposed arrangement raises a question the regulations do not answer on their face, Taxmann Advisory handles that class of work.

7. Custodian, Records, Audit and Compliance Officer

Custodian. Every portfolio manager must appoint a custodian for the securities it manages or administers. The only exception is a manager providing advisory services alone. The custodian’s name, address, SEBI registration number and date of appointment go into the registration application.

Records. Five books and records must be kept and maintained: a copy of the balance sheet at the end of each accounting period; a copy of the profit and loss account for each period; a copy of the auditor’s report on the accounts for each period; a statement of financial position; and records in support of every investment transaction or recommendation, indicating the data, facts and opinion that led to the investment decision. These are maintained under the hands of the Principal Officer.

The manager tells SEBI where those records are kept, furnishes copies of the balance sheet and profit and loss account after each accounting period, and provides a net worth certificate from a chartered accountant when required. Records must be preserved for the preceding five accounting years.

Accounts and audit. Client-wise accounts are maintained separately. Funds received, investments and disinvestments, credits such as interest, dividend, bonus or other beneficial interest, and debits for expenses are all accounted for in the client’s account, along with tax deducted at source under the Income-tax Act, 1961.

The books are audited yearly by a qualified auditor, to confirm both that proper accounting methods were followed and that the manager performed its duties in accordance with law. Where specified, a certificate to that effect goes to SEBI within six months of the close of the accounting period. Separately, the portfolio accounts are audited annually by an independent chartered accountant, and a copy of that certificate is given to the client. A client may also appoint their own chartered accountant to audit the manager’s books relating to their transactions, and the manager must co-operate.

Compliance officer. Every portfolio manager appoints one. The role covers monitoring compliance with the Act, rules, regulations, notifications, guidelines and instructions issued by SEBI or the Central Government, and the redressal of investor grievances. Any non-compliance observed is reported to SEBI immediately and independently.

8. Frequently Asked Questions

What is the net worth requirement for a portfolio manager in India?

₹5 crore. It is one of the eleven conditions SEBI satisfies itself on before granting a certificate of registration under the SEBI (Portfolio Managers) Regulations, 2020.

What is the minimum investment in PMS?

Fifty lakh rupees. A portfolio manager cannot accept funds or securities worth less than that from a client. The floor applies to new clients and to fresh investments by existing clients, and does not apply to an accredited investor or to a co-investment portfolio manager.

Can an individual register as a portfolio manager?

No. A portfolio manager must be a body corporate, as defined in Section 2(11) of the Companies Act, 2013.

What is the difference between discretionary and non-discretionary PMS?

A discretionary portfolio manager exercises discretion over the investment of funds and manages each client’s portfolio individually and independently. A non-discretionary manager consults the client on every transaction and provides investment execution rather than investment management.

Can a portfolio manager impose a lock-in?

No. Portfolio managers cannot impose a lock-in on a client’s investment. They may charge a graded exit load on redemption: a maximum of 3 per cent in the first year, 2 per cent in the second, 1 per cent in the third, and nil after three years, under the PMS circular dated 13 February 2020.

Who qualifies as a Principal Officer?

An employee responsible for the manager’s investment decisions and for overall supervision of its operations, holding a professional qualification in finance, law, accountancy or business management, or the NISM Post Graduate Program in the Securities Market (Portfolio Management) of at least one year, or a CFA charter; with five years of relevant securities market experience, of which at least two are in portfolio management, investment advisory or fund management; and the NISM certification SEBI specifies.

Does a portfolio manager need a custodian?

Yes, for the securities it manages or administers. A manager providing only advisory services is the exception.

How long must a portfolio manager preserve its records?

For the preceding five accounting years, and they must be furnished to SEBI as and when required.

Chapter 7 in full, alongside the operational, process, performance, taxation and regulatory chapters, is in NISM X Taxmann's Portfolio Management Services (PMS) Distributors, the official workbook for the NISM-Series-XXI-A certification. Every NISM certification workbook published by Taxmann is listed on Taxmann.com | Store.