Portfolio Manager | Conduct | Various roles and responsibilities

Who is a Portfolio Manager?

The term portfolio means a collection or basket of investments. The Portfolio manager is detained as a person who, in pursuance of a contract with agents, builds, supervises and manages a portfolio on behalf of the clients in return for a fee.

SEBI (Portfolio Managers) Rules, 1993 have been enacted to control and regulate the operations of portfolio managers under these regulations.

Portfolio management can be discretionary or non-discretionary, Discretionary portfolio management permits the exercise of discretion with regard to investment or management of the portfolio of securities. A non-discretionary portfolio manages funds in accordance with the directions of the clients.

Merchant Banker and Portfolio Manager

Under the SEBI (Merchant. Bankers) Regulations l992, merchant bankers placed in category I and category II alone can work as portfolio managers. The merchant bankers belonging to category III and IV cannot act as portfolio managers.

However, any person can work as a portfolio manager provided he is registered under the SEBI (Portfolio Manager) Regulations 1993. So, merchant bankers of categories I and II need not have a separate registration to act as a portfolio manager.

Procedure for Registration to act as Portfolio Manager

SEBI takes into account the following particulars while considering the application for registration to act as a portfolio managers.

1. Basic infrastructure such as manpower, equipment, optimum amount of staff to discharge his works.

2.Minimum of 2 persons with enough experience should be employed to manage portfolio.

3. A person directly or indirectly connected with applicant, that is, associate, subsidiary, inter-connected group or group company that has not been granted registration.

4. Adequate capital, not less than a net worth of Rs. 50 lakh in terms of capital plus free reserves excluding revaluation reserves minus accumulated losses as deferred expenditure not written off.

5. That the applicant, partner, director or principal officer has not been convicted for any offense involving moral turpitude or guilty of any economic offense.

6. The applicant, partner, director or principal officer is not involved in any litigation connected with the securities market.

7. The principal officer of the applicant is professionally qualified in business management, accounting, finance and similar skills or an experience of at least 8 to 10 years in the financial sector.

8. The grant of certificate in the interest of the investors.

9. The applicant is a fit and proper person.

Portfolio Manager and the Client

A portfolio manager manages the portfolio of securities on behalf of a client. Before accepting for portfolio management on behalf of client, an agreements should be made with the client. Such agreements should contain

1. Objectives of the investments and the types of services offered.

2. A complete information about the investment plans, risks associated with the investment.

3. Restrictions, if any, regard to investment in any particular company or sector, imposed by the clients.

4. Time period of the contract and norms regarding the early termination of the contract, if any.

5. Amount to be invested

6.Procedure by which accounts will be settled including the repayment on maturity or termination of contract.

7. Portfolio manager’s fee for managing the portfolio.

8. Custody of securities, etc.

General Responsibilities of a Portfolio Manager

The general responsibilities of a portfolio manager are as follows.

1. The funds of clients should be managed by portfolio managers in accordance with clients needs and direction.

2. He should act in a fiduciary capacity with regard to the client’s funds.

3. He should transact in securities within the limitations placed by the client himself with regard to dealing in securities under the provision of the Reserve Bank of India Act, 1934.

4. He should not derive any direct on indirect benefit out of the clients funds or securities.

5. He, cannot pledge or lend securities held on behalf of clients, to a third person without client’s permission.

6. It is the responsibility of a Portfolio Manager to attend to the clients complaints in a proper and timely manner. He should also ensure that proper action is taken immediately.

Code of conduct for portfolio managers

A portfolio manager should

1. Be fair in all dealings with clients and staff with higher standard of integrity.

2. Deploy as soon as possible the money received by him from a client.

3. Render at all times high standards of services, exercise due diligence.

4. Ensure proper care and exercise independent professional judgement.

5. Avoid any conflict of interest in his investment or disinvestment decision.

6. Ensure fair treatment to all his customers.

7. Provide unbiased service by disclosing all possible sources of conflict of duties and interest.

8. Not to place his interest above those of his clients.

9. Be fair in his approach and shall not utter any statement that will harm the interest of other portfolio managers.

10. Not to make any exaggerated statement to the clients about his qualification of capacity.

11. Obtain in writing from the client, his interest in various corporate bodies which would enable him to obtain unpublished price sensitive information of the body corporate.

12. Not to disclose to any client or the press, any confidential information about his clients which has come to his knowledge.

13. Take adequate steps for the registration of transfer of client’s securities and for claiming and receiving dividends, interest payments and other rights accruing to the clients.

14. Must take necessary action for the conversion of securities and subscription, renunciation of rights in accordance with the client’s institutions.

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