Disclosure Document
The 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.
In plain language
Before a client signs up for a PMS, the portfolio manager has to put its cards on the table. The disclosure document is where that happens.
It tells a prospective client who the portfolio manager is, what services and investment approaches it offers, what can go wrong, what it costs, how the manager has performed, what regulators have found against it, and how its own associates are involved.
The regulation requires it to be given to the prospective client along with the account opening form, prior to signing of the agreement, with an audit trail kept — and to be available on the portfolio manager's website at all times. It must be written in simple language, in a clear, concise and easily understandable manner.
How it works
SEBI, in consultation with APMI, introduced a simplified disclosure document format via SEBI circular dated September 09, 2025 (Chapter 8, section 8.2). It has two parts.
Part I — Static section (items 1–11)
| No. | Heading |
|---|---|
| 1 | Disclaimer clause — prepared under the PM Regulations and filed with SEBI; not approved or disapproved by SEBI |
| 2 | Definitions |
| 3 | Description — history, promoters and directors, top 10 group companies by turnover, services offered |
| 4 | Penalties, pending litigation, inspection findings, regulatory action |
| 5 | Services offered — objectives, investment approaches, policy and maximum percentage for investments in associates/group companies |
| 6 | Risk factors — market risk, past performance not indicative, non-diversification, no track record, conflicts |
| 7 | Nature of expenses |
| 8 | Taxation |
| 9 | Accounting policies |
| 10 | Investor services — investor relation officer, grievance and dispute mechanism |
| 11 | Diversification policy |
Part II — Dynamic section (items 12–16)
| No. | Heading |
|---|---|
| 12 | Client representation — categories, number of clients, funds managed, related party transactions |
| 13 | Financial performance of the portfolio manager (audited) |
| 14 | Portfolio management performance for the last three years; for discretionary managers, using TWRR |
| 15 | Audit observations of the preceding 3 years |
| 16 | Investments of client funds in securities of related parties or associates |
Where else it matters. The ₹50 lakh minimum can be waived for accredited investors only subject to disclosures in this document (Chapter 7); up to 100% in unlisted securities for large value accredited investors likewise (Chapter 12); the option of direct on-boarding must be prominently disclosed in it (Chapter 8); and the PMS distributor code of conduct requires distributors to be fully conversant with it (Chapter 12).
A worked example
Illustrative investor; the document's structure is the workbook's.
Farhan, a Pune businessman, has ₹75,00,000 to invest and is considering two portfolio managers. His distributor hands him each firm's disclosure document with the account opening form. Before signing anything, Farhan reads:
| What he wants to know | Where he finds it |
|---|---|
| Has SEBI penalised the firm? | Item 4 — penalties, litigation, inspection findings |
| Will his money go into the promoter group's companies? | Item 5 — policy and maximum percentage in associates; item 16 — actual investments in related parties |
| What will it cost? | Item 7 — management and advisory fees, custodian, RTA, brokerage |
| How has it performed? | Item 14 — three years, calculated using TWRR for discretionary |
| What did the auditors say? | Item 15 — audit observations of the preceding 3 years |
| Whom does he complain to? | Item 10 — investor relation officer and grievance mechanism |
| Can he skip the distributor? | The firm must disclose the direct on-boarding option |
He notices that one firm's item 6 states it has no previous track record. The regulation requires that disclosure to be made — and that single line changes how he weighs item 14.
Why NISM asks about it
Chapter 8 (Operational Aspects of Portfolio Managers, 13% weightage) sets out the full format and the timing rule, and repeats the timing rule in section 8.3.1 as the first step of client onboarding. Chapter 7 and Chapter 12 tie exemptions (accredited investors, large value accredited investors) to it, and Chapter 12's distributor code of conduct and Investor Charter both reference it. Expect questions on when it is given, the static-versus-dynamic split, TWRR in item 14, and the SEBI disclaimer.
Common exam traps
- "SEBI approves the disclosure document." No — the disclaimer states SEBI has neither approved nor disapproved it nor certified its accuracy.
- Timing: with the account opening form, before the agreement is signed — not after onboarding.
- Static = items 1–11; dynamic = items 12–16. Performance, audit observations and related party investments are dynamic.
- Performance covers three years; audit observations the preceding 3 years.
- TWRR is required for discretionary managers' performance in the document; XIRR is for reporting an individual investor's own returns (Chapter 8, section 8.8).
- It must also be on the website, not just handed over.
- A distributor must know it fully — being unfamiliar with it breaches the code of conduct.
Check yourself
1.When must the disclosure document be given to a prospective PMS client?
- a)After the agreement is signed, along with the first report
- b)Along with the account opening form, prior to signing the agreement
- c)Only if the client asks for it
- d)Within 30 days of the first investment
Show the answer
Answer: (b) Along with the account opening form, prior to signing the agreement
The regulation requires the disclosure document to be given along with the account opening form prior to signing of the agreement, with an audit trail kept. It must also be available on the portfolio manager's website.
Giving it after signing defeats its purpose — the client must understand what they are agreeing to before they agree. It is not optional, and there is no 30-day window in the workbook.
2.In the simplified Disclosure Document format, which of the following items belongs to Part-II (Dynamic Section) rather than Part-I (Static Section)?
- a)Disclaimer clause
- b)Risk factors
- c)Audit observations of the preceding 3 years
- d)Accounting policies
Show the answer
Answer: (c) Audit observations of the preceding 3 years
The Disclosure Document has two parts. Part-II: Dynamic Section holds the items that change over time: client representation, financial performance, performance of the portfolio manager, audit observations of the preceding 3 years and details of investments in the securities of related parties.
The disclaimer clause, risk factors and accounting policies are all headings in Part-I: Static Section (items 1, 6 and 9), along with definitions, description, penalties and litigation, services offered, nature of expenses, taxation, investor services and the diversification policy.
3.Under the Disclosure Document heading on penalties and pending litigation, how must pending criminal cases against the portfolio manager or its key personnel be shown?
- a)They need not be shown until there is a conviction
- b)They are reported only to SEBI, not in the Disclosure Document
- c)Only cases against the directors need to be shown
- d)As a separate disclosure within the disclosure of pending material litigation
Show the answer
Answer: (d) As a separate disclosure within the disclosure of pending material litigation
The workbook requires disclosure of “any pending material litigation/legal proceedings against the portfolio manager/key personnel with separate disclosure regarding pending criminal cases, if any”.
Waiting for a conviction is wrong — the heading is about pending cases. The disclosure is made in the Disclosure Document itself, which goes to prospective clients, not only to SEBI. And the requirement covers the portfolio manager and its key personnel, not only directors.
Where this is taught
- Series XXI-B · Chapter 8: Operational Aspects of Portfolio Managersintroduced here
- Series X-A · Chapter 12: Portfolio Managerintroduced here
- Series XXI-A · Chapter 8: Operational Aspects of Portfolio Managersintroduced here
Related terms
- Investor CharterSEBI's published statement of what an investor is entitled to from an intermediary — the services, the rights, the dos and don'ts, and a table of activities with the timeline each one must be completed in.
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- 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.
- Investment approachA broad outlay of the securities and permissible instruments a portfolio manager will invest in for a client, set out in the PMS agreement and tagged to exactly one strategy.
- Time Weighted Rate of ReturnA compounded return that neutralises client deposits and withdrawals by linking sub-period returns, so it measures the manager’s decisions. Mandatory for PMS investment approach performance.
- Direct onboardingThe 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.
- Minimum investment amountThe floor SEBI places on what a portfolio manager may accept from a client — fifty lakh rupees of funds or securities, with exemptions for accredited investors and co-investment portfolio managers.
- Advisory servicesThe PMS service type in which the portfolio manager only suggests ideas or gives non-binding advice; the investor both takes the decisions and executes the transactions.
- MITCThe standard-format Most Important Terms and Conditions document a portfolio manager must give every client alongside the portfolio management agreement, so the critical terms are not buried in the full contract.
- Lock-inA minimum holding period before withdrawal, expressly barred in PMS: a portfolio manager cannot force a client to keep funds invested, though a graded exit load may still apply.
- Scheduled Commercial BankThe type of bank where a portfolio manager must keep a separate account holding all clients' funds, segregated from the manager's own money, a general responsibility under the PMS Regulations.
- StrategyA SEBI-mandated broad theme, equity, debt, hybrid or multi-asset, that every Investment Approach must be tagged to, each strategy carrying its own prescribed benchmarks.
- Negative list of securitiesA list of securities, companies or industries a PMS client restricts a portfolio manager from investing in, taken at the time the agreement is signed and made part of the account opening form.