Negative list of securities

A discretionary PMS mandate gives a portfolio manager wide freedom. The manager can buy and sell within an agreed universe of securities. A client can narrow that freedom too. The tool for this is a negative list of securities. It names specific companies, sectors, or types of securities. The manager must not invest in anything on this list, whatever else the mandate allows.

The workbook is direct about timing. Take the negative list from the client at the time of signing the agreement. Make it part of the account opening form.

Where it fits (Chapter 12's checklist of client-facing intimations, echoing Chapter 7's universe of securities). Chapter 7 explains that the agreement between a portfolio manager and a client defines the universe of securities for investment, including "areas of investment and restrictions, if any, imposed by the client with regard to the investment in a particular company or industry." The negative list is exactly that restriction, captured as a distinct, named document at onboarding.

Timing. It must be taken at the time the client signs the agreement, not added afterwards, and it must be built into the account opening form itself, so it is on record from day one rather than communicated informally.

The workbook gives no example categories, such as a named sector or a named competitor, and no process for updating the list after onboarding. It states only that the list must be taken at signing and made part of the account opening form.

Figures illustrative; the workbook gives categories for a negative list, not numbers.

Mr. Desai, a senior executive at a listed pharmaceutical company, signs a discretionary PMS agreement with a ₹75,00,000 corpus. Because of his employment and the insider-trading restrictions that come with it, he tells his portfolio manager that his own employer's shares, and those of its two closest listed competitors, must never appear in his portfolio.

This becomes his negative list of securities, recorded on his account opening form at the time of signing. Six months later, the portfolio manager's regular Investment Approach re-rates the pharma sector and is about to place a ₹6,00,000 buy order in his employer's stock for every other client on that approach. For Mr. Desai's account specifically, the manager is bound to skip that trade entirely, while continuing to buy the stock freely for other clients with no such restriction.

The negative list appears in Chapter 12 (Regulatory, Governance and Ethical Aspects of Portfolio Managers), among the client intimation and disclosure requirements a distributor and portfolio manager must satisfy, and echoes Chapter 7's definition of the universe of securities. Expect a question on when the negative list must be taken, at signing, and where it must be recorded, the account opening form.

• The negative list is client-specific, not a fixed exclusion list applied to every client of the portfolio manager.
• It must be taken at the time of signing and built into the account opening form, not collected informally or added on request later, per the workbook's stated timing.
• It restricts what the manager may buy; it does not itself define what the manager must buy. That positive scope comes from the Investment Approach and universe of securities.
• Do not confuse this with the MITC, which is a standard-format summary of the agreement's most important terms given to every client alike, rather than a client-specific restriction.