Minimum investment amount

A portfolio management service is not a retail product. SEBI keeps it that way with a simple rule about size.

Under the general responsibilities of a portfolio manager, she shall not accept funds or securities worth less than fifty lakh rupees from a client.

Note that it covers securities as well as money. A client who transfers an existing shareholding into the portfolio is measured the same way.

The floor applies to new clients and to fresh investments by existing clients. So it is not a one-time gate at account opening.

Two exemptions exist. An accredited investor is outside the requirement, subject to disclosures in the disclosure document and the terms agreed with the client. And a co-investment portfolio manager is outside it altogether.

The provision (Chapter 7, section 7.5, General Responsibilities of a Portfolio Manager). The portfolio manager shall not accept from the client funds or securities worth less than fifty lakh rupees. Three provisos follow:

1. the minimum investment amount per client shall be applicable for new clients and fresh investments by existing clients;
2. subject to appropriate disclosures in the disclosure document and the terms agreed between the client and the portfolio manager, the requirement shall not apply to an accredited investor;
3. the requirement shall not apply to the co-investment portfolio manager.

What the rule sits among. The same section carries the other general responsibilities, and several of them shape how that Rs 50 lakh is then handled: the manager acts in a fiduciary capacity with regard to the client's funds; she segregates each client's holdings in securities in separate accounts; she keeps the funds of all clients in a separate account with a Scheduled Commercial Bank; she may not derive any direct or indirect benefit out of the client's funds or securities; she may not borrow funds or securities on behalf of the client; and she may not lend the client's securities to a third person except as provided in the regulations.

The section also separates the two service types: a discretionary portfolio manager manages each client's funds individually and independently, in accordance with the client's needs, in a manner which does not partake the character of a Mutual Fund, while a non-discretionary manager manages funds in accordance with the directions of the client.

A different number in the same chapter. Chapter 7's sample question 1 asks the net worth requirement to register as a PMS provider under the SEBI (Portfolio Managers) Regulations, 2020, and offers Rs 50 lakh among the options. The two figures are unrelated: Rs 50 lakh is what a client must bring, and net worth is what the portfolio manager must have.

Illustrative figures applying the workbook's rule. A portfolio manager reviews five prospective and existing clients.

The fourth row is the one that catches firms out. A client with Rs 3 crore under management cannot add Rs 15,00,000, because each fresh investment has to clear fifty lakh rupees in its own right. If she wants to add money, the addition must be at least Rs 50,00,000.

The third row is the other trap. Securities count. A client holding 2,500 shares worth Rs 1,400 each brings Rs 35,00,000 of value into the portfolio, and that counts towards the floor as surely as a bank transfer would.

And the exempt client in the fifth row is not exempt from everything. The manager still has to make appropriate disclosures in the disclosure document, still owes her a fiduciary duty, and still has to hold her securities in a separate account of her own.

Chapter 7 (Role of Portfolio Managers), section 7.5 (General Responsibilities of a Portfolio Manager), states the Rs 50 lakh floor as the second of the general responsibilities, with its three provisos.

Expect a direct recall question on the amount — fifty lakh rupees — and on who is exempt: an accredited investor and a co-investment portfolio manager. The examiner's favourite refinement is whether the floor applies to a top-up by an existing client, and it does. Chapter 7's sample question 1, on the PMS net worth requirement, offers Rs 50 lakh as a distractor precisely because candidates confuse the two figures.

• Rs 50 lakh is the client's minimum, not the manager's net worth. Chapter 7's own sample question uses one as a distractor for the other.
• Fresh investments by existing clients are caught. The floor is not only an account-opening test.
• Funds or securities. Transferring a shareholding in counts towards the amount; it is not a cash-only rule.
• Two exemptions, and they are not the same shape. The accredited investor exemption is conditional on appropriate disclosures in the disclosure document and the agreed terms; the co-investment portfolio manager exemption is stated without conditions.
• Worth less than fifty lakh rupees is the prohibition, so exactly Rs 50,00,000 is acceptable.
• The floor is per client. An aggregate across several clients is irrelevant, and so is the size of the manager's total AUM.