NISM Series XXI-A cheat sheet

SEBI (Portfolio Managers) Regulations, 2020: minimum investment per client ₹50 lakh; portfolio manager must maintain net worth of ₹5 crore (or ₹2.5 crore if depository participant).

Discretionary PMS: manager takes investment decisions without client consent for each trade. Non-discretionary: client approves each transaction. Advisory: manager only advises; execution is client's responsibility.

Performance disclosure: SEBI mandates monthly portfolio disclosure, but return calculation must use time-weighted return (TWRR) and be reported net of all fees and expenses.

Fee structures: fixed management fee (typically 1-2.5% p.a.), performance fee (e.g., 20% over high-water mark), or hybrid. Entry/exit loads are allowed but must be disclosed.

High-water mark (HWM): performance fee is charged only on profits above the highest previous portfolio value (net of fees) to prevent double charging.

Client onboarding: KYC mandatory, risk profiling, signed PMS agreement, and disclosure of conflicts of interest. Minimum ticket size ₹50 lakh per client.

Portfolio Manager cannot accept securities in physical form; demat account mandatory for both client and manager. Client retains beneficial ownership.

SEBI registration: portfolio manager must obtain certificate of registration from SEBI; application via Form A, fee ₹5 lakh, and comply with fit & proper criteria.

Principal officer and compliance officer: mandatory appointments; principal officer needs relevant experience and qualification; compliance officer reports to SEBI on compliance.

Custodian: optional but recommended for safekeeping; if appointed, must be SEBI-registered custodian. Client can also appoint independent custodian.

Distributor eligibility: SEBI-registered portfolio manager can engage distributors; distributors must hold NISM Series XXI-A certification and be registered with AMFI (if mutual fund distributor) or SEBI (if investment adviser).

Commission disclosure: portfolio manager must disclose to client the commission paid to distributor, both upfront and trail, in the PMS agreement and periodic statements.

Trail fee: typically 0.5% to 1% p.a. of AUM; must be paid directly by client or deducted from portfolio with explicit consent. Upfront fee (if any) capped by agreement.

Conflict of interest: distributor cannot receive commission from both product manufacturer and client for same service unless disclosed; must act in client's best interest.

Client onboarding process: risk profiling questionnaire, KYC verification, signing of PMS agreement, fee disclosure document, and acknowledgement of risk factors.

Account opening: client must provide PAN, proof of address, bank details, demat account, and nomination (optional). In-person verification (IPV) required.

Reporting to client: monthly statement of portfolio holding and transactions; quarterly performance report; annual audited statement. Statements must be sent within 10 days of month-end.

Grievance redressal: portfolio manager must have dedicated grievance redressal mechanism; escalate to SEBI SCORES if unresolved within 30 days.

Advertising and marketing: SEBI prohibits misleading claims, guaranteed returns, and use of past performance without standard disclaimer. Distributors cannot promise returns.

Record keeping: maintain records of client communications, agreements, and transactions for at least 5 years (or 8 years for disputes).

Valuation: portfolio must be valued at market price daily; for unlisted securities, use fair valuation methods approved by the portfolio manager's valuation committee.

Performance calculation: time-weighted return (TWRR) is mandatory for reporting; money-weighted return (MWRR) may be shown for client-specific cash flows but must be labelled.

Benchmark: must be disclosed in the PMS agreement; if no benchmark, use appropriate market index (e.g., Nifty 50, BSE 500) and compare consistently.

Fee accrual: management fee accrued daily on AUM; performance fee accrued only when portfolio exceeds high-water mark, typically crystallized monthly or quarterly.

Redemption/withdrawal: client can withdraw funds as per agreement; typically notice period of 7-30 days; exit load may apply if withdrawn before lock-in (if any).

Transfer of portfolio: client can transfer securities to another PMS or demat account; manager must facilitate within 7 working days of request.

Client communication: quarterly newsletter, annual review meeting, and immediate notification of any material change in investment strategy or key personnel.

Risk management: portfolio manager must have documented risk management policy, including concentration limits, stop-loss triggers, and liquidity risk assessment.

SEBI inspection: portfolio manager subject to periodic SEBI inspections; must provide records and cooperate. Non-compliance can lead to penalties or cancellation of registration.

Investor protection: SEBI mandates segregation of client funds and securities; portfolio manager cannot use one client's assets for another's obligations.