SEBI Requirements on Performance Disclosure

SEBI (Investment Advisers) Regulations, 2013 and the SEBI (Portfolio Managers) Regulations, 2020 lay down detailed performance‑disclosure norms for all registered entities. The purpose is to promote transparency, protect investors, and enable fair comparison of advisory services.

The regulations apply to every investment adviser (IA), portfolio manager (PM), and their associated distributors. Non‑compliance can attract monetary penalties, suspension of registration, or even criminal prosecution. Hence, the exam frequently tests both the substance of the disclosure and the procedural aspects.

Key regulatory clauses include: (i) mandatory periodic performance statements, (ii) benchmark disclosure, (iii) risk‑adjusted return metrics, and (iv) clear statements on past‑performance limitations. Memorise the clause numbers (e.g., Regulation 10(2) for IA, Regulation 23 for PM) as they often appear in scenario‑based questions.

• Mandatory vs. voluntary disclosures – mandatory items are prescribed; voluntary items enhance credibility but are not required.
• Mode of disclosure – electronic (website, email) or physical (hard copy) as per client preference.

SEBI mandates that performance information be disclosed at least quarterly for portfolio managers and monthly for investment advisers managing discretionary portfolios. The disclosure must be sent to every client and posted on the adviser’s/manager’s website within 15 days of the period end.

For non‑discretionary advisory services, the frequency can be quarterly, but the adviser must still provide a summary of the client’s portfolio performance on request. The mode can be electronic (PDF, email) or physical, but the content must be identical across modes.

Exam tip: Questions often ask you to pick the correct frequency for a given advisory model. Recall the hierarchy – discretionary > non‑discretionary, and portfolio manager > investment adviser.

Every performance disclosure must contain the following mandatory elements: (1) Absolute return for the reporting period, (2) Annualised (CAGR) return, (3) Benchmark return and the method of benchmark selection, (4) Risk metrics such as standard deviation or Sharpe ratio, (5) Expense ratio charged to the client, and (6) Portfolio turnover if applicable.

In addition, the disclosure must clearly state the valuation methodology (e.g., market price, NAV), the date of valuation, and any material events that impacted performance (e.g., market crash, fund merger). The language must be neutral; adjectives like “excellent” or “superior” are prohibited.

From an exam perspective, you may be presented with a sample disclosure and asked to identify missing mandatory items. Use the checklist above to spot omissions quickly.

SEBI requires that the benchmark used for performance comparison be disclosed alongside the rationale for its selection. The benchmark must be a recognised market index that reflects the investment style and asset class of the portfolio.

If a custom benchmark is employed, the adviser must detail the construction methodology, weighting scheme, and rebalancing frequency. Failure to disclose the benchmark or using an inappropriate benchmark can be deemed misleading.

Exam tip: When a question provides a portfolio that invests 70% in equities and 30% in debt, the correct benchmark is a blended index reflecting the same asset mix, not a pure equity index.

Beyond raw returns, SEBI mandates the disclosure of at least one risk‑adjusted performance measure. The most common is the Sharpe Ratio, calculated as (Portfolio Return – Risk‑free Rate) ÷ Portfolio Standard Deviation.

The risk‑free rate used should be the prevailing yield on a government security of comparable maturity (e.g., 10‑year Treasury bond). The standard deviation must be computed on a monthly return series over the same period as the return being reported.

In the exam, you may be asked to identify which metric satisfies the regulatory requirement. Remember: simple volatility (standard deviation) alone is insufficient; a risk‑adjusted figure is needed.

SEBI explicitly forbids any statement that guarantees future returns, predicts market movements, or uses superlatives such as “best in class” without objective evidence. The adviser must also avoid cherry‑picking periods that portray an unduly favourable picture.

Disclosures must include a disclaimer that past performance is not indicative of future results. The disclaimer should be placed prominently, not buried in fine print.

Exam focus: Scenarios often present a client brochure with a bold claim. Your task is to flag the violation and select the correct regulatory citation.

Non‑compliance with performance‑disclosure norms can attract a monetary penalty of up to INR 5 crore, suspension of the registration certificate for up to six months, or even cancellation in severe cases. SEBI may also direct the adviser to publish a corrective notice on its website.

Advisers must maintain records of all disclosures for a minimum of five years and make them available for SEBI inspection. Regular internal audits are recommended to ensure that the disclosures are accurate, timely, and complete.

In the exam, you may be asked to select the appropriate penalty for a given violation. Remember the hierarchy: warning → monetary penalty → suspension → cancellation.

Advisors should adopt a standard template that incorporates all mandatory elements, includes a clear disclaimer, and presents data in a client‑friendly format (tables, charts, and concise commentary). Updating the template annually ensures consistency and reduces the risk of omission.

Leverage technology to automate the calculation of annualised returns, risk metrics, and expense ratios. Automation also helps meet the 15‑day posting deadline reliably.

From an exam perspective, questions may test your ability to recommend practical steps to achieve compliance. Emphasise template usage, automation, and periodic internal audits.