In the world of finance, a portfolio manager plays a crucial role in helping individuals and businesses effectively manage their investments. This article will provide a comprehensive guide to portfolio managers, including their roles, the services they offer, the types of portfolio management services, eligibility criteria for registration, and the process of becoming a portfolio manager in India.
Who is a Portfolio Manager?
Portfolio Manager is a specialized professional in the financial industry who helps individuals or companies manage their investments. They are hired by clients to create strategies that can make money by investing in different types of assets like stocks or bonds. In simpler terms, a portfolio manager is like a trusted advisor who helps people or businesses make smart decisions with their money. They work closely with clients to grow their investments and make sure everything is managed properly according to agreed-upon rules and contracts. In India, a person can operate as a Portfolio Manager only after obtaining valid certificate of registration from the Securities and Exchange Board of India (SEBI)
What is Portfolio Management Service?
Portfolio Management Services (PMS) are offered by Portfolio Managers to grow your wealth and achieve financial goals using instruments like stocks, mutual funds and bonds.
What are the types of Portfolio Management Services?
Portfolio Management Services are of two types: i. Discretionary Portfolio Management Services In discretionary portfolio management service, the portfolio manager individually and independently manages the funds and securities of each client in accordance with the needs of the client. ii. Non-Discretionary Portfolio Management Services Under the non-discretionary portfolio management service, the portfolio manager manages the funds in accordance with the directions of the client.
Requirements to Become a Portfolio Manager in India
- The portfolio management company must assign a ‘Principal Officer.’ The Principal Officer is generally the person who leads the investment activities at the PMS.
- The Principal Officer must have a professional qualification in finance (like CFA) and a minimum of 5 years of financial experience (in portfolio management, accountancy etc.).
- The Principal Officer must have appeared for and passed the NISM XXI-A and XXI-B examinations.
- The portfolio management company must assign a ‘Compliance Officer.’
- The PMS company must have at least one employee (other than Principal and Compliance Officers) with at least 2 years of experience in investment management.
- The PMS company must have adequate infrastructure (like office space, laptops, enough employees etc.) to operate as a PMS.
- The portfolio management company must have a net worth of at least Rs. 5 crore.
- The portfolio management company must have a clause in their MoA (Memorandum of Agreement) that the company can undertake PMS business.
- The portfolio management company must have an active bank account in a well-recognised bank.
- The portfolio management company must have a tie-up with a custodian that will hold the securities under the client’s name/ownership. This is basically having a tie-up with a broker that can provide demat accounts to the PMS clients.
- The applicant or a related party must not have previously been subject to regulatory action. In rare cases, your application may still be considered if the offence was minor.
What are the eligibility criteria to obtain registration as a Portfolio Manager
The eligibility criteria for registration as a Portfolio Manager are provided under Regulation 7 (2) of the SEBI (Portfolio Managers) Regulations, 2020. The criteria are as follows:
a. The applicant shall be a body corporate;
b. The applicant must have the necessary infrastructure, such as adequate office space, equipment and manpower to effectively discharge their activities as a portfolio manager;
c. The applicant must have appointed a compliance officer;
d. The applicant should appoint a principal officer who should be:
> A professional qualified in finance, accountancy, business management or law from a university recognized by the Central Government or State Government or any foreign university or any postgraduate professional qualification obtained from Securities Market (Portfolio Management) from NISM of a duration not less than 1 year or is a CFA;He must have a minimum of 5 years experience in activities related to the securities market, including portfolio manager, stockbroker, investment advisor, fund manager or research analyst; and
In addition to the above, the applicant must employ at least one person who possesses the following qualifications:
> A graduate from a recognized university;
> A person with an experience of at least 2 years in activities related to the securities market including portfolio manager, stockbroker, investment advisor or fund manager.
f. No disciplinary action should have been taken by the board against any person connected with the applicant, either directly or indirectly, under the Act, rules or regulations framed hereunder;
g. The applicant should fulfill the net worth requirement as specified under Regulation 9 of SEBI (Portfolio Managers) Regulations, 2020, which is INR 5 crore, subject to exceptions;
h. The applicant or its director, partner, principal officer, compliance officer or employee should not be involved in any litigation with the securities market that might have an adverse effect on the business of the applicant;
i. The applicant should be a fit and proper person; and
j. The certificate should be granted to the applicant in the interest of investors
How to get registered as Portfolio Manager with SEBI?
Step 1: To start the process, complete the application for registration using Form-A and apply for the portfolio manager certificate. Submit all the necessary documents along with a non-refundable application fee of Rs. 1 lakh through the SEBI Portal. Note: While the process is primarily online, SEBI may request a physical copy of the application form if needed. It is recommended to prepare the form in physical format and send it to the designated SEBI officer when requested.
Step 2: Allow SEBI some time to review your application and supporting documents. The duration of this review period depends on the number of applications SEBI is currently processing.
Step 3: Following the review, SEBI may either request additional information or determine that your application qualifies for the portfolio manager certificate.
Step 4: Once SEBI approves your application and considers it suitable for the portfolio manager certificate, you will be required to pay a registration fee of Rs. 10 lakhs to obtain the certificate. Acquiring the certificate from the SEBI comes with the condition that you will continue to fulfil the moral and regulatory requirements of being a portfolio manager.
FAQs
What is a portfolio manager?
A portfolio manager is an individual or entity that manages investment portfolios on behalf of clients for a fee. They provide personalized investment management services tailored to the specific needs and objectives of their clients.
Why is registration required for portfolio managers?
Registration is required to ensure that portfolio managers meet certain standards of competency, integrity, and financial soundness. It also provides regulatory oversight to protect investors and maintain the integrity of the financial markets.
What are the eligibility criteria for portfolio manager registration?
The eligibility criteria may vary depending on the jurisdiction and regulatory requirements. Generally, portfolio managers must meet certain educational qualifications, professional experience, and financial stability criteria set by the regulatory authority.
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