The Securities and Exchange Board of India (Sebi) has mandated portfolio management scheme operators to disclose details of distributors’ commission to investors every quarter. In an updated to its FAQ, Sebi said PMSes have to furnish reports to their clients every quarter, including details of commission paid to distributors.
“The disclosure of distribution commission was not mandated in the PMS industry this far. As per new regulations, PMS investors will also know the distributor commission details. In the mutual fund industry, investors already know how much commission their distributor earns,” said R Pallava Rajan, Founder, PMS Bazaar.
Sebi also said PMS should include the composition and value of the portfolio in the report along with a description of securities and goods, cash balance and aggregate value of the portfolio as on the date of the report. The report should include transactions undertaken during the period of the report, date of transaction and details of purchases and sales.
Sebi clarified that investors can also expect details of beneficial interest received during that period in the form of interest, dividend, bonus shares and rights shares, among others, and expenditure incurred in managing a client portfolio.
“PMSes should also disclose the risk foreseen by the money manager and the risk relating to the securities recommended by them for investment or disinvestment,” Sebi said. The market regulator also clarified that portfolio managers cannot impose a lock-in on the investment of their clients. However, a portfolio manager can charge applicable exit fees from a client in case of early redemption.
The services of a portfolio manager are governed by an agreement inked between the portfolio manager and investor. Therefore, Sebi advised investors to read the agreement carefully before signing it. “The agreement should cover the minimum details as specified in the Sebi Portfolio Manager Regulations. However, the portfolio manager can specify additional requirements too,” it said.