NISM Series X-A · Chapter 12: Portfolio Manager

L1 · Foundation

Foundation — Portfolio managers, service types and registration

What a portfolio manager is and the regulations governing them, the classifications by provider and product class, the three service types of discretionary, non-discretionary and advisory, the registration requirements including net worth and personnel, and the thirteen responsibilities.

13 min read · Worth 5% of the paper · Written from pages 225–232 of the official NISM workbook · Updated 18 September 2026

12.1 Overview of portfolio managers in India

"Portfolio management involves SELECTING AND MANAGING A BASKET OF ASSETS that MINIMIZES RISK, WHILE MAXIMIZING RETURN on investments. A portfolio manager plays a PIVOTAL ROLE IN DESIGNING CUSTOMIZED INVESTMENT SOLUTIONS for the clients".

The definition

"Portfolio managers are registered and regulated under SEBI (PORTFOLIO MANAGERS) REGULATIONS, 2020. According to SEBI guidelines PMS CAN BE OFFERED ONLY BY SEBI REGISTERED ENTITIES".

Body corporate "broadly means a CORPORATE ENTITY WHICH HAS A LEGAL EXISTENCE".

The historical note

"JANUARY 1993 marked the BEGINNING OF PORTFOLIO MANAGEMENT SERVICE when SEBI issued SEBI (PORTFOLIO MANAGERS) REGULATIONS, 1993. These were ONE OF THE FIRST FEW REGULATIONS issued by the regulators. THESE REGULATIONS CAME EVEN BEFORE THE MUTUAL FUND REGULATIONS. THIS SHOWS THE IMPORTANCE OF THE SECTOR TO THE REGULATOR".

"In India the MAJOR PROVIDERS of portfolio management services are BIG BROKERAGE FIRMS, ASSET MANAGEMENT COMPANIES AND INDEPENDENT EXPERTS".

12.2 Types of portfolio management services

By provider

1. PMS by asset management companies · 2. PMS by brokerage houses · 3. Boutique (independent) PMS houses

By product class

1. Equity based PMS · 2. Fixed Income based PMS · 3. Commodity PMS · 4. Mutual Fund PMS · 5. Multi Asset based PMS

By service — the three types

"Portfolio managers may classify their clients ON THE BASIS OF THEIR NET-WORTH. Another way which ALSO FINDS MENTION IN THE REGULATION is ON THE BASIS OF THE SERVICES PROVIDED".

Service	Who decides	Who executes
Discretionary	The portfolio manager	The portfolio manager
Non-discretionary	The client	The portfolio manager
Advisory	The investor	The investor

Discretionary services — SEBI's definition: "a portfolio manager who under a contract relating to portfolio management, EXERCISES OR MAY EXERCISE, ANY DEGREE OF DISCRETION AS TO THE INVESTMENT OF FUNDS OR MANAGEMENT OF THE PORTFOLIO OF SECURITIES OF THE CLIENT".

"In other words, discretionary portfolio manager INDIVIDUALLY AND INDEPENDENTLY MANAGES THE FUNDS OF EACH INVESTOR AS PER THE CONTRACT. This could be based on an EXISTING INVESTMENT APPROACH OR STRATEGY which the portfolio manager is offering OR CAN BE CUSTOMIZED BASED ON CLIENT'S REQUIREMENT".

Non-discretionary services — "manages the funds IN ACCORDANCE WITH THE DIRECTIONS OF THE CLIENT. The portfolio manager DOES NOT EXERCISE HIS DISCRETION for the buy or sell decisions. HE HAS TO CONSULT THE CLIENT FOR EVERY TRANSACTION".

Advisory services — "the portfolio manager SUGGESTS THE INVESTMENT IDEAS OR PROVIDES NON-BINDING INVESTMENT ADVICE. THE INVESTOR TAKES THE DECISIONS. THE INVESTORS ALSO EXECUTE THE TRANSACTIONS".

"These kinds of services are TYPICALLY USED FOR INSTITUTIONAL CLIENTS, who MANAGE PORTFOLIOS ON THEIR OWN, but typically HIRE COUNTRY EXPERTS IN EACH COUNTRY".

12.4 Registration requirements

"Obtaining CERTIFICATE OF REGISTRATION FROM SEBI under the Portfolio Managers regulations is a MANDATORY REQUIREMENT". The application goes to SEBI "along with NON-REFUNDABLE FEE", in Form A of Schedule I, "a VERY DETAILED FORM".

The ten heads of information in Form A:

Particulars of the applicant (Name, PAN, Address).
Organization Structure.
Infrastructural Facilities.
Business Plan (for THREE YEARS).
Financial Information (capital structure, net-worth, deployment of resources, major sources of income).
Other Information (settled and pending disputes, membership with stock exchanges).
Business Information (type of activity, facilities for making decisions on portfolio investment, RISK PROFILING PROCEDURE, grievance redressal and dispute resolution mechanism, research and database facilities).
Experience in financial services rendered.
Additional information (DRAFT AGREEMENT WITH CLIENT, DRAFT DISCLOSURE DOCUMENT, details of custodian, SEBI Registration).
Declaration (compliance, FIT AND PROPER, periodic reports, disclosure documents, maintenance of records).

What SEBI considers before granting registration

Requirement	Detail
Form	"the applicant is a BODY CORPORATE"
Infrastructure	"ADEQUATE OFFICE SPACE, EQUIPMENT AND THE MANPOWER"
Compliance officer	"the applicant HAS APPOINTED A COMPLIANCE OFFICER"
Principal officer	"a PROFESSIONAL QUALIFICATION IN FINANCE, LAW, ACCOUNTANCY OR BUSINESS MANAGEMENT, experience of AT LEAST FIVE YEARS in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and THE RELEVANT NISM CERTIFICATION"
Third employee	"IN ADDITION TO THE PRINCIPAL OFFICER AND COMPLIANCE OFFICER, AT LEAST ONE PERSON who has A GRADUATION from a recognised university and AN EXPERIENCE OF AT LEAST TWO YEARS in related activities"
Net worth	"FIVE CRORE RUPEES"
Disciplinary record	Any disciplinary action taken by the regulator against a connected person
Litigation	Litigation connected with the securities market "that has an ADVERSE BEARING ON THE BUSINESS"
Convictions	"convicted for any offence INVOLVING MORAL TURPITUDE or found guilty of ANY ECONOMIC OFFENCE"
Fit and proper	"the applicant is a FIT AND PROPER PERSON"

"The certificate of registration granted SHALL BE VALID UNLESS IT IS SUSPENDED OR CANCELLED by the regulator".

12.5 The responsibilities of a portfolio manager

"The DISCRETIONARY portfolio manager shall INDIVIDUALLY AND INDEPENDENTLY MANAGE THE FUNDS OF EACH CLIENT in accordance with the needs of the client, IN A MANNER WHICH DOES NOT PARTAKE CHARACTER OF A MUTUAL FUND, whereas the NON-DISCRETIONARY portfolio manager shall manage the funds IN ACCORDANCE WITH THE DIRECTIONS OF THE CLIENT".
"shall NOT ACCEPT from the client, FUNDS OR SECURITIES WORTH LESS THAN FIFTY LAKH RUPEES".
"shall ACT IN A FIDUCIARY CAPACITY with regard to the client's funds".
"shall SEGREGATE EACH CLIENT'S HOLDING IN SECURITIES IN SEPARATE ACCOUNTS".
"shall KEEP THE FUNDS OF ALL CLIENTS IN A SEPARATE ACCOUNT to be maintained by it in a SCHEDULED COMMERCIAL BANK".
"shall invest A MAXIMUM OF 30% of their client's portfolio IN SECURITIES OF THEIR OWN ASSOCIATES/RELATED PARTIES. A ONE-TIME WRITTEN CONSENT SHALL BE TAKEN FROM THE CLIENT".
"shall NOT MAKE INVESTMENTS IN BELOW INVESTMENT GRADE SECURITIES".
"shall transact within the limitation placed by the client with regard to dealing in securities UNDER THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934".
"shall NOT DERIVE ANY DIRECT OR INDIRECT BENEFIT out of client's funds or securities".
"shall NOT BORROW FUNDS OR SECURITIES ON BEHALF OF THE CLIENT".
"shall NOT LEND SECURITIES held on behalf of the clients TO A THIRD PERSON except as provided under these regulations".
"shall ensure PROPER AND TIMELY HANDLING OF COMPLAINTS and take APPROPRIATE ACTION IMMEDIATELY".
"shall ensure that any person involved in the DISTRIBUTION OF ITS SERVICES is carrying out the distribution activities IN COMPLIANCE WITH THESE REGULATIONS".

Think of it like this

PMS regulations came before mutual fund regulations

A small historical fact the chapter draws meaning from: "JANUARY 1993 marked the beginning of Portfolio Management Service when SEBI issued SEBI (Portfolio Managers) Regulations, 1993. These were ONE OF THE FIRST FEW REGULATIONS issued by the regulators. THESE REGULATIONS CAME EVEN BEFORE THE MUTUAL FUND REGULATIONS. THIS SHOWS THE IMPORTANCE OF THE SECTOR TO THE REGULATOR." The current framework is the 2020 Regulations, but SEBI was policing this space from almost its first day.

Three services, and the question is who decides and who executes

The cleanest way to hold the three service types is as a two-column test. Discretionary: the manager decides and executes. Non-discretionary: the client decides — "Decisions like WHAT TO BUY/SELL? And WHEN TO BUY/SELL? REST WITH THE INVESTOR" — while "THE EXECUTION OF TRADE IS DONE BY THE PORTFOLIO MANAGER." Advisory: the manager only suggests, and "THE INVESTOR TAKES THE DECISIONS. THE INVESTORS ALSO EXECUTE THE TRANSACTIONS." Decision and execution move from the manager to the client across the three.

A PMS must not behave like a mutual fund

One phrase in the responsibilities carries the whole regulatory distinction: the discretionary manager must manage each client's funds "INDIVIDUALLY AND INDEPENDENTLY... IN A MANNER WHICH DOES NOT PARTAKE CHARACTER OF A MUTUAL FUND." This is why each client's securities sit in separate accounts and client funds are held in a separate account at a Scheduled Commercial Bank. A mutual fund pools; a PMS manages many separate portfolios that may follow a common approach but never merge.

Rs 50 lakh is the floor, and it is in the regulations

The minimum is not a commercial preference but a legal obligation on the manager: "the portfolio manager shall NOT ACCEPT from the client, FUNDS OR SECURITIES WORTH LESS THAN FIFTY LAKH RUPEES." It sits in a clear ladder — mutual funds at retail amounts, Specialized Investment Funds at Rs 10 lakh, PMS at Rs 50 lakh, AIFs at Rs 1 crore — and the ladder is what justifies the lighter regulation at each higher rung.

Associates capped at 30 per cent, with written consent

A conflict-of-interest rule with two parts, both examinable: "Portfolio manager shall invest a MAXIMUM OF 30% of their client's portfolio in SECURITIES OF THEIR OWN ASSOCIATES/RELATED PARTIES. A ONE-TIME WRITTEN CONSENT SHALL BE TAKEN FROM THE CLIENT." Note it is one-time consent, not per transaction — and the cap applies regardless of consent. Related to this is the flat prohibition: "shall NOT DERIVE ANY DIRECT OR INDIRECT BENEFIT out of client's funds or securities."

Three people, three different bars

Registration requires a specific staffing structure. The principal officer needs a professional qualification in finance, law, accountancy or business management, five years of relevant experience and the NISM certification. A compliance officer must be appointed. And separately, "IN ADDITION TO THE PRINCIPAL OFFICER AND COMPLIANCE OFFICER", at least one more person with a graduation and two years of experience. Three distinct roles, and the experience bars differ.

No below-investment-grade securities, at all

A blanket prohibition that catches people out: "Portfolio managers shall NOT MAKE INVESTMENTS IN BELOW INVESTMENT GRADE SECURITIES." There is no consent mechanism and no percentage allowance. Combined with the ban on borrowing funds or securities on behalf of the client and on lending client securities to a third person, the regulations rule out the leveraged and credit-heavy strategies that an AIF might pursue — which is precisely why AIFs exist as a separate, higher-threshold category.

Advisory service is really for institutions

The chapter is unusually specific about who advisory PMS is for: "These kinds of services are TYPICALLY USED FOR INSTITUTIONAL CLIENTS, who MANAGE PORTFOLIOS ON THEIR OWN, but typically HIRE COUNTRY EXPERTS IN EACH COUNTRY." A foreign pension fund running its own book still needs someone who knows the Indian market — it buys the opinion, not the management. The advice is explicitly non-binding.

Key terms in this chapter

Advisory service: A service where the portfolio manager suggests ideas or gives non-binding advice, while the investor takes the decisions and executes the transactions. Typically used by institutional clients hiring country experts.
Associate investment cap: The rule that a portfolio manager may invest a maximum of 30 per cent of a client's portfolio in securities of its own associates or related parties, after taking one-time written consent from the client.
Below investment grade prohibition: The outright bar on portfolio managers making investments in below investment grade securities.
Body corporate: A corporate entity which has a legal existence. Only a body corporate may be registered as a portfolio manager.
Catch-up and no catch-up: Under no catch-up only the gain above the hurdle rate is charged; under catch-up, once the hurdle is crossed fees are computed from the first earning, catching up to the total earnings.
Direct access facility: The route by which an investor approaches a PMS provider without a distributor, saving commission and lowering cost. Every PMS must offer it, and the management process is otherwise unchanged.
Disclosure Document: The document a portfolio manager must give the client, stating the quantum and manner of fees for each activity, portfolio risks specific to each investment approach and related party disclosures under ICAI standards. It must be on the website and filed with SEBI.
Discretionary portfolio manager: A manager who exercises any degree of discretion over investment of funds or management of the client's securities, managing each client's funds individually and independently in a manner that does not partake the character of a mutual fund.
Fiduciary capacity: The standard in which a portfolio manager must act with regard to client funds, reinforced by prohibitions on deriving any direct or indirect benefit from those funds or securities.
Fit and proper person: One of the conditions SEBI examines before registration, alongside the absence of convictions for moral turpitude or economic offences and of litigation with an adverse bearing on the business.
Fixed cost: The fee paid to a PMS regardless of outcome, usually a fixed percentage such as 1 per cent of the amount managed, together with brokerage and other transaction costs.
Form A of Schedule I: The detailed application form for portfolio manager registration, covering particulars, organisation structure, infrastructure, a three-year business plan, financial and business information, experience, draft documents and declarations.
High watermark: The corpus value or NAV at which fees have been paid historically. No further profit share arises until the previous higher level is passed, so the manager cannot charge for recovering earlier poor performance.
Hurdle rate: The return that must be crossed before a PMS may charge a profit share, stated in the PMS agreement. Below it, no profit sharing calculation arises.
Minimum investment in PMS: A portfolio manager shall not accept from a client funds or securities worth less than fifty lakh rupees.
Net worth requirement: The Rs 5 crore minimum net worth a portfolio manager applicant must satisfy before SEBI grants a certificate of registration.
Non-discretionary service: Management in accordance with the client's directions, where the client decides what and when to buy or sell and the portfolio manager only executes the trade.
Performance linked cost: The profit sharing fee paid in addition to the fixed cost, designed to incentivise better performance against targets set in the PMS agreement. It can turn out to be quite high.
Portfolio manager: A body corporate which, under a contract with a client, advises, directs or undertakes the management or administration of a portfolio of securities or the client's funds, whether discretionary or otherwise.
Principal officer: The officer required to hold a professional qualification in finance, law, accountancy or business management, at least five years of relevant securities market experience, and the relevant NISM certification.
SEBI (Portfolio Managers) Regulations, 2020: The regulations under which portfolio managers are registered and regulated. The first such regulations were issued in January 1993, before the mutual fund regulations.
Segregation of holdings: The requirement that each client's securities be held in separate accounts, and that all clients' funds be kept in a separate account maintained with a Scheduled Commercial Bank.
Uniform performance reporting: The requirement that a portfolio manager report performance identically in disclosures to SEBI, in marketing materials, in reports to clients and on its website.

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Original explanatory writing based on the official NISM workbook for Series X-A, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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