Responsibilities of a Portfolio Manager

SEBI (Securities and Exchange Board of India) registration is mandatory for any individual or entity managing client funds. The portfolio manager must obtain a valid SEBI registration as a Portfolio Manager (Category I or II) and comply with the Investment Advisers Regulations, 2013.

Regulatory duties include maintaining a separate client account, ensuring segregation of client assets, and adhering to the prescribed capital adequacy norms. The manager must also file periodic returns, such as the annual compliance report, and disclose any material conflict of interest to the client in writing.

Exam relevance: SEBI registration and compliance are frequent multiple‑choice questions. Remember that failure to maintain segregation of assets is a common trap; the manager must keep client holdings separate from proprietary holdings.

• Maintain a client‑specific ledger for each portfolio.
• Submit quarterly compliance certificates to the SEBI registrar.

A portfolio manager acts as a fiduciary, meaning the client’s interests must always outrank the manager’s own interests. This duty is embedded in the "client‑first" principle mandated by SEBI and reinforced by NISM guidelines.

Key fiduciary duties include loyalty, prudence, and full disclosure. Loyalty requires avoiding any transaction that could benefit the manager at the client’s expense. Prudence demands that the manager exercise reasonable care, skill, and diligence, similar to a prudent person managing their own money.

For the exam, remember the three‑step test: (1) Identify the duty, (2) Assess compliance, (3) Document the action. Failure to document a conflict of interest often leads to a deduction in marks.

• Loyalty – No self‑dealing or preferential treatment.
• Prudence – Conduct thorough research before investment.

The investment process begins with a comprehensive client profiling to capture risk tolerance, investment horizon, and liquidity needs. Portfolio managers then construct a strategic asset allocation that aligns with the client’s objectives and the prevailing market environment.

Execution involves selecting securities, monitoring market movements, and rebalancing the portfolio when drift exceeds predefined thresholds. The manager must also ensure that all trades comply with the investment policy statement (IPS) and any regulatory limits on exposure.

From an exam perspective, questions often present a scenario where a client’s risk profile changes. The correct response is to revisit the IPS, adjust the asset allocation, and document the change.

• Client profiling – risk capacity vs. risk appetite.
• Strategic vs. tactical allocation – long‑term vs. short‑term adjustments.

Portfolio managers must provide clients with regular performance reports that include absolute returns, benchmark comparison, and attribution analysis. The report should disclose fees, expenses, and any cash flows that affect the return calculation.

Standard performance metrics include the Holding‑Period Return (HPR), Time‑Weighted Return (TWR), and the Portfolio Turnover Ratio. While HPR and TWR are qualitative for this sub‑topic, the turnover ratio is quantitative and often examined.

Exam tip: If a question asks for the impact of high turnover, the correct answer is higher transaction costs and potential tax inefficiency, which can erode net returns.

• Holding‑Period Return – measures total return over the holding period.
• Time‑Weighted Return – neutralizes cash‑flow effects.

Effective risk management is a statutory duty. The manager must identify, measure, and monitor market, credit, liquidity, and operational risks. Tools such as Value‑at‑Risk (VaR), stress testing, and scenario analysis are commonly used.

Limits on concentration (e.g., no more than 10% in a single issuer) and exposure caps (e.g., sector limits) must be enforced. Breaches require immediate reporting to the client and SEBI, along with remedial action.

For exam preparation, remember the risk‑management hierarchy: Identify → Measure → Monitor → Mitigate. Questions may present a breach scenario; the correct answer involves reporting, corrective rebalancing, and documentation.

• Concentration limit – maximum % in a single security.
• Sector cap – maximum % in a specific industry.

All portfolio actions must be recorded in a systematic manner. This includes trade tickets, client approvals, risk limit breaches, and periodic compliance reviews. Documentation serves as evidence during SEBI audits and protects the manager against liability claims.

Key documents are the Investment Policy Statement (IPS), client agreement, transaction logs, and performance reports. The manager must retain records for a minimum of five years as per SEBI guidelines.

Exam tip: Questions often ask which document outlines the client’s risk tolerance and investment objectives. The correct answer is the Investment Policy Statement (IPS).

• IPS – defines investment objectives, constraints, and risk parameters.
• Trade ticket – records each buy/sell with date, price, and quantity.