Overview of Portfolio Managers in India

A Portfolio Manager (PM) is a person or a corporate entity that manages a collection of securities on behalf of clients, aiming to achieve specified investment objectives. The PM makes discretionary decisions about buying, selling, and holding assets, subject to the mandate agreed with the client.

In the Indian context, Portfolio Managers are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Portfolio Managers) Regulations, 2020. The regulation ensures that PMs act in the best interest of investors, maintain adequate capital, and disclose material information.

For the NISM exam, you must remember that a PM differs from a non‑discretionary Investment Adviser because the former can execute trades without prior client approval, whereas the latter merely recommends. This distinction often appears in scenario‑based questions.

• Key function – Asset allocation and security selection.
• Primary goal – Optimize risk‑adjusted returns for the client.

SEBI recognises three main categories of Portfolio Managers: Discretionary PMs, Non‑discretionary PMs and Mutual Fund Portfolio Managers. Each type differs in the level of decision‑making authority granted by the client.

A Discretionary PM can execute trades on behalf of the client without seeking prior approval for each transaction, provided the actions stay within the agreed investment policy statement (IPS). This model is common for high‑net‑worth individuals and institutional investors who prefer a hands‑off approach.

A Non‑discretionary PM offers advice and recommendations, but the client must approve every trade. This type is often used by retail investors who want professional guidance while retaining control.

Mutual Fund Portfolio Managers manage pooled funds under the mutual fund structure. Their responsibilities are governed by both SEBI (Portfolio Managers) Regulations and SEBI (Mutual Funds) Regulations, adding an extra layer of compliance.

Any individual or entity wishing to act as a Portfolio Manager in India must obtain a registration certificate from SEBI. The application is made through Form PM‑1 and must be accompanied by supporting documents such as net‑worth certificates, fit‑and‑proper declarations and compliance manuals.

Key eligibility criteria include: a minimum net‑worth of INR 5 crore for individuals and INR 10 crore for firms, a clean regulatory record, and at least three years of relevant experience in securities market activities. The net‑worth requirement is a capital adequacy measure to protect client assets.

After registration, the PM must maintain a separate client account, keep detailed records of all transactions, and submit annual compliance reports to SEBI. Failure to comply can lead to penalties, suspension or cancellation of the registration.

A Portfolio Manager’s primary duty is fiduciary – they must act in the best interest of the client, placing the client’s interests above their own. This includes constructing a portfolio that aligns with the client’s risk tolerance, investment horizon and financial goals.

Other core responsibilities are: conducting thorough due‑diligence on securities, monitoring portfolio performance, rebalancing assets as needed, and ensuring that all transactions comply with the Investment Policy Statement. The PM must also disclose any conflicts of interest and obtain informed consent before undertaking actions that could affect the client.

From an exam perspective, questions often ask which of the following is NOT a fiduciary duty of a PM. Remember that “providing tax advice” is outside the core fiduciary scope unless the PM is also a qualified tax consultant.

Portfolio performance is evaluated using both absolute and risk‑adjusted metrics. Absolute return simply measures the percentage change in portfolio value over a period, while risk‑adjusted measures consider the volatility of returns.

The most commonly tested risk‑adjusted metric in the NISM syllabus is the Sharpe Ratio. It compares the excess return earned over the risk‑free rate to the standard deviation of portfolio returns, providing a single figure that reflects return per unit of risk.

Other metrics such as Alpha and Beta are also part of the syllabus, but they are more relevant for equity‑focused portfolios. Remember that a higher Sharpe Ratio indicates better risk‑adjusted performance, which is a frequent exam focus.

Portfolio Managers charge fees for managing assets. The two most common components are the Management Fee (a fixed percentage of assets under management, AUM) and the Performance Fee (a percentage of returns above a predefined benchmark).

In addition, the expense ratio of the underlying mutual fund (if applicable) is passed on to the investor. SEBI mandates that all fees be disclosed in the client agreement and that they be reasonable relative to services rendered.

Exam questions often present a fee scenario and ask you to calculate the net return to the client after deducting both management and performance fees. Remember to apply the performance fee only on the excess return over the benchmark.

Registered Portfolio Managers must file periodic compliance reports with SEBI, including the annual compliance report (ACR) and quarterly performance statements. These reports must detail client holdings, transaction logs, fee disclosures and any breaches of the investment policy.

Additionally, PMs are required to maintain a risk management framework that includes stress‑testing, VaR calculations and a clear escalation matrix for breaches. Internal audits must be conducted at least once a year, and audit reports are submitted to SEBI on request.

For the exam, be prepared to identify which of the following is NOT a mandatory reporting requirement for a Portfolio Manager – the answer is usually a “monthly marketing brochure” which is not mandated by SEBI.

SEBI issued amendments to the Portfolio Managers Regulations in 2023, introducing stricter net‑worth requirements for new entrants and mandating real‑time reporting of large exposures (above 10% of AUM). These changes aim to enhance transparency and reduce systemic risk.

Another notable update is the requirement for Portfolio Managers to disclose the methodology used for calculating risk‑adjusted performance metrics, such as the Sharpe Ratio, in client statements. This ensures clients can verify the calculations.

Questions in the NISM exam may refer to these recent amendments, so keep the key points – higher net‑worth thresholds and real‑time exposure reporting – in mind.