Two ₹40 Lakh Tickets and a Distributor's 60 Basis Points
Meera and Arjun, both 44, run a design studio and have been referred to you by a mutual fund distributor. They want discretionary PMS accounts in a large-cap strategy and each proposes to invest ₹40 lakh - ₹80 lakh in total - asking that the two accounts be treated as one client so that the ₹50 lakh floor is met. Their money currently sits in a joint mutual fund folio worth ₹82 lakh. The distributor's trail is 0.60% a year of assets; the strategy's fixed fee is 1.75% a year plus GST, invoiced quarterly in advance on average daily net assets; there is a 1% exit load on exits within 12 months. Arjun wants an email confirming "14-15% CAGR, as the brochure shows" and asks that the distributor's 0.60% be "absorbed inside the 1.75% so no extra line item appears". Their only other assets are a flat and ₹9 lakh of emergency funds.
1. Can the firm accept Meera and Arjun as two separate ₹40 lakh accounts? What onboarding structure, if any, would lawfully satisfy the minimum investment requirement?
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No. The SEBI (Portfolio Managers) Regulations, 2020 set a minimum investment of ₹50 lakh per client, and the test is applied client by client at the time of onboarding - two adult individuals cannot be clubbed to reach it, and ₹40 lakh cannot be accepted now against a promise to top up later. (Market movement dragging an existing portfolio below the threshold afterwards is a different situation.) The clean route is a single joint account: a joint holding counts as one client, and ₹82 lakh clears the floor comfortably. That route needs joint-holder KYC and in-person verification for both, a joint mandate recording who operates the account and the surviving holder's rights, and a risk profile documented for both. If they insist on separate accounts, the honest answer is to wait until each has ₹50 lakh, or to use mutual funds for now. Treating two tickets as one client to win the mandate would breach the minimum-investment rule and leave the firm's suitability file unsupportable in an inspection.
2. How should the 0.60% distributor fee and the 1.75% management fee be disclosed and billed, and can Arjun avoid the distributor fee?
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The distribution fee must be a visible line item, not an invisible margin. The signed agreement and the disclosure document should show the management fee, the distribution fee, whether each is inclusive or exclusive of GST, the billing basis (average daily net assets) and the frequency. Arjun must give informed written consent to the distribution fee; folding 0.60% inside 1.75% misstates the manager's own charges and destroys the client's ability to compare providers. The manager must also offer direct onboarding: if Arjun comes directly, the 0.60% can be avoided, and he should be told this in writing before signing. In practice: quote 1.75% plus 0.60% plus 18% GST on the fees, translate it into rupees (roughly ₹1.88 lakh a year on ₹80 lakh before GST), state that fees may be billed in advance for no more than one quarter, and keep the consent on file. If he elects the direct route, no distribution fee is charged and no distributor is paid.
3. Arjun's request for a written "14-15% CAGR" confirmation and the brochure he was shown: what may and may not be said, and what must be completed before onboarding?
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Nothing, written or verbal, may promise or guarantee a return, so the email is refused. Past performance may be shown only in the prescribed form - composite performance computed on a time-weighted basis over a stated period, against a stated benchmark, with the standard disclaimer that past performance is not indicative of future results - and the distributor cannot substitute his own version or a single client's numbers. The brochure is checked against the manager's approved material before further use. Before onboarding: complete KYC/AML and in-person verification, record a documented risk profile, map the large-cap strategy to that profile, explain the exit load, the drawdown history and how the ₹9 lakh emergency corpus relates to a long-horizon product, and obtain an acknowledgement that returns are not assured. If they still insist on a written return commitment, decline the mandate - no amount of suitability paperwork cures an assured-return promise, and the distributor's own conduct would be the first thing examined.