Scheduled Commercial Bank

A portfolio manager handles other people's money, and the regulations make sure that money never gets mixed up with the manager's own. One way they do this is by naming exactly where client funds must sit: "the portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank."

The workbook repeats this rule twice, once among the general responsibilities of a portfolio manager and again in the Do's list, which signals how central it is to keeping client money safe. The workbook does not itself define what makes a bank "scheduled". For this paper's purposes, the operative point is simply that this is the category of bank where client funds must be held, separately from the manager's own funds.

Two places the rule appears (Chapter 7).

• General responsibilities (section 7.4, item 5): the portfolio manager shall keep the funds of all clients in a separate account maintained by it in a Scheduled Commercial Bank.
• Do's (section 7.5.3, item 4): repeats the identical requirement, alongside segregating each client's securities holding into separate accounts.

What this achieves. Two layers of segregation work together. Client funds are kept separate from the portfolio manager's own funds, so the manager cannot use client cash as its own working capital, and each client's holding in securities is kept in separate accounts too, so one client's assets are not mixed with another's.

The workbook gives no further detail, such as a list of qualifying banks, a minimum balance, or an interest-crediting rule, for the Scheduled Commercial Bank account itself. The requirement is stated as a segregation rule, not an operational one.

Meridian Portfolio Managers Pvt Ltd manages PMS accounts for 40 clients. Under the rule, Meridian must maintain a separate bank account, at a Scheduled Commercial Bank, holding the pooled cash of all 40 clients, distinct from Meridian's own corporate bank account, where it holds its management fee income and operating funds.

Within that client account, Meridian's back office still tracks each client's individual cash balance separately, just as it tracks each client's securities holding in a separate demat account. If Meridian's own business ran into financial trouble, client funds sitting in the Scheduled Commercial Bank account are not available to Meridian's own creditors. That segregation is exactly what protects clients from such a scenario.

Chapter 7 (Role of Portfolio Managers), sections 7.4 and 7.5.3, both state this segregation requirement. Expect a question testing whether client funds may be held in the same account as the portfolio manager's own funds (no), and recall of the specific bank category, Scheduled Commercial Bank, named in the regulation.

• This is about segregation, not about interest rates or bank selection criteria. The workbook does not test what makes a bank "scheduled".
• Client funds must be separate from the manager's own funds, and each client's securities holding must also be separate from other clients' — two distinct segregation requirements stated together.
• The rule appears twice in the workbook, general responsibilities and Do's — either citation is correct; they are not two different rules.
• This is a fund-custody rule, distinct from a custodian holding securities — the bank holding client cash and the custodian holding securities can be, but need not be, the same institution.