Direct onboarding
The option portfolio managers must give clients to join a PMS directly, without a distributor. It must be prominently disclosed, and only statutory charges may be levied at direct onboarding.
In plain language
A client can reach a PMS in two ways: through a distributor, or straight to the portfolio manager. The second route is direct onboarding.
SEBI does not leave this to the portfolio manager's goodwill. As per the SEBI circular the workbook cites, portfolio managers shall provide an option to clients to be on-boarded directly, without intermediation of persons engaged in distribution services. The option has to be advertised, not hidden, and a client who uses it cannot be charged anything except statutory charges at the time of onboarding.
The workbook adds the plain alternative: investors can invest in PMS through distributors. Both routes exist; the rule ensures the client knows the direct one is there.
How it works
The rule (Chapter 8, section 8.3.6).
| Requirement | Detail |
|---|---|
| Option must exist | Portfolio managers shall provide an option to be on-boarded directly |
| Option must be visible | Prominently disclosed in the disclosure document, marketing material and on the website |
| Charges | At direct onboarding, no charges except statutory charges |
| Alternative | Investors can invest through distributors |
Everything else in onboarding is the same (Chapter 8, sections 8.3.1–8.3.7). The direct client still receives the disclosure document with the account opening form before signing, completes KYC (PAN is mandatory), fills the account opening form, signs the agreement, receives the MITC, and invests at least ₹50 lakh in cash, securities or a combination.
What the distributor route adds. Chapter 12 records that any person or entity distributing PMS must obtain registration with APMI, and the distributor code of conduct requires disclosing to clients all material information including the details of distribution commissions for various investment approaches. The portfolio manager's periodic report to the client must include details of commission paid to distributor(s) for the particular client (Chapter 8, section 8.8; Chapter 12, section 12.4.3). The same code requires that commission or incentive shall never form the basis for recommending PMS.
A worked example
Illustrative investors and amounts; the ₹50 lakh minimum and the direct-onboarding rules are the workbook's.
Two colleagues in Hyderabad each invest ₹60,00,000 in the same investment approach of the same portfolio manager.
| Meenakshi | Vikram | |
|---|---|---|
| Route | Direct onboarding via the manager's website | Through an APMI-registered distributor |
| Documents received | Disclosure document, account opening form, agreement, MITC | Same |
| KYC and PAN | Required | Required |
| Charges at onboarding | Only statutory charges | As per his agreement and the distributor's disclosed arrangement |
| Commission shown in periodic report | None paid for her | Details of commission paid to the distributor for him |
Meenakshi learned about the direct option because the firm's marketing brochure and website had to mention it prominently.
Vikram may still prefer his distributor — for help with KYC, comparing approaches and understanding risk, all of which the distributor code of conduct requires. The rule does not say the direct route is better; it says the client must be able to choose it knowingly.
Why NISM asks about it
Direct onboarding is in Chapter 8 (Operational Aspects of Portfolio Managers, 13% weightage), section 8.3.6, as part of the client onboarding process. For a PMS distributor — the person this exam certifies — it is a rule about their own role: clients must be told they can bypass the distributor. It links to Chapter 12 (APMI registration of distributors, the distributor code of conduct and commission disclosure). Expect a direct question on the only charges permitted at direct onboarding.
Common exam traps
- "Direct onboarding is free of all charges." Not quite — statutory charges may be levied; nothing else.
- Disclosure is required in three places: disclosure document, marketing material and website.
- Direct onboarding does not lower the ₹50 lakh minimum, or skip KYC, the agreement or the MITC.
- Distributors are not banned. The workbook states the distributor route remains available.
- Commission paid to a distributor is disclosed per client in the periodic report, and commission must never be the basis for a recommendation.
Check yourself
1.A client wants to invest in a PMS without using a distributor. Which statement is correct?
- a)The portfolio manager may refuse, since PMS is sold only through distributors
- b)The portfolio manager must offer direct onboarding and may levy only statutory charges
- c)Direct onboarding is allowed, but a processing fee equal to the distributor commission applies
- d)Direct onboarding is available only to accredited investors
Show the answer
Answer: (b) The portfolio manager must offer direct onboarding and may levy only statutory charges
Portfolio managers shall provide an option for direct onboarding, disclose it prominently in the disclosure document, marketing material and website, and levy no charges except statutory charges.
Refusal is not allowed. A fee replacing the commission is exactly what "only statutory charges" rules out. The workbook does not restrict direct onboarding to accredited investors.
Where this is taught
Free preparation for NISM Series XXI-BRelated terms
- APMIThe Association of Portfolio Managers in India — the PMS industry body that prescribes benchmarks and valuation norms, standardises client documents and registers PMS distributors.
- Portfolio Management ServicesA tailored investment service where the client owns the securities directly in their own name, regulated under the SEBI (Portfolio Managers) Regulations, with a minimum investment of Rs 50 lakh.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- Disclosure DocumentThe document a portfolio manager must give every prospective client with the account opening form, before the agreement is signed, and keep on its website — setting out the manager, services, risks, fees and performance.
- Upfront feeA fee charged at the time of investing. Portfolio managers may not charge upfront fees to clients, directly or indirectly — so the full amount invested starts working from day one.