NISM Series X-A · Chapter 18: Key Regulations

L1 · Foundation

Foundation — SCRA, the SEBI Act, PFUTP, the Intermediaries code, insider trading, and who is an Investment Adviser

The four foundational statutes and regulations, the fifteen measures under the SEBI Act, the definition of fraud, the code of conduct for intermediaries, the insider trading framework, and the definitions, registration criteria and exemptions under the SEBI (Investment Advisers) Regulations, 2013.

26 min read · Worth 5% of the paper · Written from pages 334–366 of the official NISM workbook · Updated 18 September 2026

18.1 Securities Contracts (Regulation) Act, 1956

It provides for DIRECT AND INDIRECT CONTROL OF VIRTUALLY ALL ASPECTS of securities trading and the running of stock exchanges.

In plain words: this is the law behind how stock exchanges run and how securities are traded.

It gives the CENTRAL GOVERNMENT the regulatory jurisdiction over THREE things:

(a) STOCK EXCHANGES, through a process of RECOGNITION AND CONTINUED SUPERVISION; (b) CONTRACTS IN SECURITIES; and (c) LISTING OF SECURITIES ON STOCK EXCHANGES.

And the logic behind it: a transaction in securities between two persons is essentially A CONTRACT, and this is the law that specifically applies in the case of a securities contract.

18.2 The SEBI Act, 1992

Three verbs in one preamble — protect, develop, regulate. Everything SEBI does traces back to one of them.

The Act then lists fifteen jobs for SEBI. Most are about registering people and firms, stopping cheating, and checking up on the market.

Without prejudice to the generality of that, the Act also provides for the following measures:

a. Regulating the business in stock exchanges and any other securities markets.

b. Registering and regulating the working of STOCK BROKERS, SHARE TRANSFER AGENTS, BANKERS TO AN ISSUE, REGISTRARS TO AN ISSUE, MERCHANT BANKERS, UNDERWRITERS, PORTFOLIO MANAGERS, INVESTMENT ADVISERS and such other intermediaries.

c. Registering and regulating the working of DEPOSITORIES AND ITS PARTICIPANTS, CUSTODIANS OF SECURITIES, FOREIGN PORTFOLIO INVESTORS, CREDIT RATING AGENCIES and such other intermediaries as notified by SEBI.

d. Registering and regulating the working of VENTURE CAPITAL FUNDS AND OTHER COLLECTIVE INVESTMENT SCHEMES, INCLUDING MUTUAL FUNDS.

e. Promoting and regulating SELF-REGULATORY ORGANISATIONS.

f. PROHIBITING FRAUDULENT AND UNFAIR TRADE PRACTICES relating to securities markets.

g. Promoting INVESTORS' EDUCATION AND TRAINING OF INTERMEDIARIES of securities markets.

h. PROHIBITING INSIDER TRADING in securities.

i. Regulating SUBSTANTIAL ACQUISITION OF SHARES AND TAKE-OVER of companies.

j. CALLING FOR INFORMATION FROM, UNDERTAKING INSPECTION, CONDUCTING INQUIRIES AND AUDITS of the stock exchanges, mutual funds, other persons associated with the securities market, intermediaries and self-regulatory organisations.

k. Performing all such functions and exercising such powers under the provisions of the SECURITIES CONTRACTS (REGULATION) ACT, 1956 as may be DELEGATED TO SEBI BY THE CENTRAL GOVERNMENT.

l. LEVYING FEES OR OTHER CHARGES for carrying out the purposes of this section.

m. CONDUCTING RESEARCH for the above purposes.

n. CALLING FROM OR FURNISHING TO any such agencies, as may be specified by SEBI, such information as may be considered necessary for the efficient discharge of its functions.

o. Performing such other functions as may be prescribed.

The SEBI Act also EMPOWERS SEBI TO IMPOSE PENALTIES AND INITIATE ADJUDICATION PROCEEDINGS against intermediaries who default on grounds such as FAILURE TO FURNISH INFORMATION OR RETURN, or FAILURE BY ANY PERSON TO ENTER INTO AGREEMENT WITH CLIENTS.

Notice the structure of clauses (b), (c) and (d). They are three separate registration buckets — market intermediaries, then market infrastructure and information providers, then pooled vehicles. Examiners like to move a name from one bucket to another.

18.3 SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003

These Regulations PROHIBIT FRAUDULENT, UNFAIR AND MANIPULATIVE TRADE PRACTICES in securities.

And now the sentence that decides most exam questions on this section:

So the test is the inducement, not the profit. A manipulator who loses money has still committed fraud.

Five examples follow. Each one is a way of tricking someone into a deal.

The five instances cited:

a) A WILFUL MISREPRESENTATION OF THE TRUTH OR CONCEALMENT OF MATERIAL FACT in order that another person may act, TO HIS DETRIMENT.

b) A SUGGESTION AS TO A FACT WHICH IS NOT TRUE, BY ONE WHO DOES NOT BELIEVE IT TO BE TRUE.

c) AN ACTIVE CONCEALMENT OF A FACT BY A PERSON HAVING KNOWLEDGE OR BELIEF OF THE FACT.

d) A PROMISE MADE WITHOUT ANY INTENTION OF PERFORMING IT.

e) A REPRESENTATION, WHETHER TRUE OR FALSE, MADE IN A RECKLESS AND CARELESS MANNER.

Read (e) twice. A representation can be TRUE and still be fraud, if it was made recklessly and carelessly — because the speaker had no basis for it.

18.4 SEBI (Intermediaries) Regulations, 2008 — Code of Conduct and Ethics

I. Investor protection

(a) Investors and clients. Every intermediary shall MAKE ALL EFFORTS TO PROTECT THE INTERESTS OF INVESTORS and shall RENDER THE BEST POSSIBLE ADVICE to its clients HAVING REGARD TO THE CLIENT'S NEEDS AND THE ENVIRONMENTS AND HIS OWN PROFESSIONAL SKILLS.

(b) High standards of service. An intermediary shall ensure that IT AND ITS KEY MANAGEMENT PERSONNEL, EMPLOYEES, CONTRACTORS AND AGENTS shall, in the conduct of their business, OBSERVE HIGH STANDARDS OF INTEGRITY, DIGNITY, FAIRNESS, ETHICS AND PROFESSIONALISM, and all professional dealings shall be effected in a PROMPT, EFFECTIVE AND EFFICIENT MANNER. And the liability rule: AN INTERMEDIARY SHALL BE RESPONSIBLE FOR THE ACTS OR OMISSIONS OF ITS EMPLOYEES AND AGENTS in respect to the conduct of its business.

(c) Exercise of due diligence and no collusion. An intermediary shall AT ALL TIMES RENDER HIGH STANDARDS OF SERVICE, EXERCISE DUE SKILL AND DILIGENCE OVER PERSONS EMPLOYED OR APPOINTED BY IT, ENSURE PROPER CARE AND EXERCISE INDEPENDENT PROFESSIONAL JUDGMENT, and SHALL NOT AT ANY TIME ACT IN COLLUSION WITH OTHER INTERMEDIARIES IN A MANNER THAT IS DETRIMENTAL TO THE INVESTORS.

(d) Fees. An intermediary SHALL NOT INCREASE CHARGES OR FEES for the services rendered WITHOUT PROPER ADVANCE NOTICE to its clients or investors.

Put simply, these four rules ask an intermediary to put the client first. It must give its best advice, act honestly, check the work of its own staff, never team up with other intermediaries against clients, and never raise fees without warning.

II. Disbursal of amounts

An intermediary shall be PROMPT IN DISBURSING DIVIDENDS, INTERESTS OR ANY SUCH ACCRUAL INCOME received or collected by it on behalf of its clients or investors.

III. Disbursal of information

An intermediary shall ensure that ADEQUATE DISCLOSURES are made to the clients in a COMPREHENSIBLE AND TIMELY MANNER, so as to enable them to make a BALANCED AND INFORMED DECISION.
An intermediary SHALL NOT MAKE ANY MISREPRESENTATION and shall ensure that the information provided is NOT MISLEADING.
An intermediary SHALL NOT MAKE ANY EXAGGERATED STATEMENT, WHETHER ORAL OR WRITTEN, either about ITS QUALIFICATION OR CAPABILITY to render certain services, or ITS ACHIEVEMENTS in regard to services rendered to other clients.
An intermediary SHALL NOT DIVULGE TO ANYBODY, either orally or in writing, directly or indirectly, ANY CONFIDENTIAL INFORMATION ABOUT ITS CLIENTS which has come to its knowledge, WITHOUT TAKING PRIOR PERMISSION of its clients — EXCEPT WHERE SUCH DISCLOSURES ARE REQUIRED TO BE MADE IN COMPLIANCE WITH ANY LAW FOR THE TIME BEING IN FORCE.

That last exception recurs throughout the chapter. Confidentiality yields to law, and to nothing else.

18.5 SEBI (Prohibition of Insider Trading) Regulations, 2015

These Regulations, as amended from time to time, have been put in place FOR THE PURPOSE OF PROHIBITING INSIDER TRADING.

Insider trading means trading on secret, price-moving facts that the public does not yet have.

Note the "or". You do not have to be connected to the company to be an insider. Possession of, or access to, unpublished price sensitive information is by itself enough.

Why it matters: any dealing or trading done by an insider based on information which is NOT AVAILABLE IN PUBLIC DOMAIN GIVES AN UNDUE ADVANTAGE TO INSIDERS AND AFFECTS MARKET INTEGRITY.

What the Regulations provide for — three things: WHO CAN BE CONSIDERED AS INSIDERS; WHAT IS PROHIBITED FOR THEM; and the SYSTEMIC PROVISIONS OR FAIR CONDUCT POLICY which need to be laid down and followed BY LISTED COMPANIES AS WELL AS INTERMEDIARIES.

18.6 SEBI (Investment Advisers) Regulations, 2013

Note the emphasis. The Regulations regulate an activity, not a job title. Whoever performs the activity is caught.

18.6.1 The definitions that decide everything

"ASSETS UNDER ADVICE" shall mean the AGGREGATE NET ASSET VALUE OF SECURITIES for which the investment adviser has rendered investment advice, IRRESPECTIVE OF WHETHER THE IMPLEMENTATION SERVICES ARE PROVIDED BY THE INVESTMENT ADVISER OR CONCLUDED BY THE CLIENT DIRECTLY OR THROUGH OTHER SERVICE PROVIDERS.

In plain words: add up the value of every security the adviser has advised on. It counts even if the client carried out the trade elsewhere.

"FAMILY OF CLIENT" shall include INDIVIDUAL CLIENT, DEPENDENT SPOUSE, DEPENDENT CHILDREN AND DEPENDENT PARENTS.

"FAMILY OF AN INDIVIDUAL INVESTMENT ADVISER" shall include INDIVIDUAL INVESTMENT ADVISER, SPOUSE, CHILDREN AND PARENTS.

Note the asymmetry, which is a classic exam point. The client's family is limited to DEPENDENT spouse, children and parents. The adviser's family has no dependency qualifier — spouse, children and parents, dependent or not. The net is deliberately wider on the adviser's side, because that is where the conflict of interest lives.

"FINANCIAL PLANNING" shall include ANALYSIS OF CLIENTS' CURRENT FINANCIAL SITUATION, IDENTIFICATION OF THEIR FINANCIAL GOALS, AND DEVELOPING AND RECOMMENDING FINANCIAL STRATEGIES TO REALISE SUCH GOALS.

"INVESTMENT ADVICE" means ADVICE RELATING TO INVESTING IN, PURCHASING, SELLING OR OTHERWISE DEALING IN SECURITIES, AND ADVICE ON INVESTMENT PORTFOLIO CONTAINING SECURITIES, WHETHER WRITTEN, ORAL OR THROUGH ANY OTHER MEANS OF COMMUNICATION, FOR THE BENEFIT OF THE CLIENT, AND SHALL INCLUDE FINANCIAL PLANNING.

In plain words: telling a client what to buy, sell or hold, or how to shape a portfolio, is investment advice. It does not matter whether it is said, written or sent. Financial planning counts too.

Two provisos carve out what is NOT investment advice:

Investment advice given through NEWSPAPER, MAGAZINES, ANY ELECTRONIC OR BROADCASTING OR TELECOMMUNICATIONS MEDIUM, WHICH IS WIDELY AVAILABLE TO THE PUBLIC, shall NOT be considered as investment advice.
TRADING CALLS shall NOT be considered as investment advice.

"TRADING CALLS" has the same meaning as assigned to it under the SEBI (Research Analysts) Regulations, 2014, and the footnote gives it: intraday, ultra-short duration, non-delivery based (other than hedging) recommendation, or any recommendation related to securities THAT ARE NOT PERSONALISED OR INVESTOR SPECIFIC.

"INVESTMENT ADVISER" means ANY PERSON, WHO FOR CONSIDERATION, IS ENGAGED IN THE BUSINESS OF PROVIDING INVESTMENT ADVICE TO CLIENTS OR OTHER PERSONS OR GROUP OF PERSONS, AND INCLUDES A PART-TIME INVESTMENT ADVISER OR ANY PERSON WHO HOLDS OUT HIMSELF AS AN INVESTMENT ADVISER, BY WHATEVER NAME CALLED.

Three traps in that one definition: "for consideration", "holds out himself" — you are caught merely by claiming the title — and "by whatever name called".

"NON-INDIVIDUAL" means A BODY CORPORATE INCLUDING A LIMITED LIABILITY PARTNERSHIP AND A PARTNERSHIP FIRM.

"OTHER BUSINESS ACTIVITY OR EMPLOYMENT" means such business activity or employment which is NOT RELATED TO SECURITIES and:

a. IT DOES NOT INVOLVE HANDLING OR MANAGING OF MONEY OR FUNDS OF CLIENT OR PERSON; or b. IT IS NOT RELATED TO PROVIDING ADVICE OR RECOMMENDATION TO ANY CLIENT OR PERSON IN RESPECT OF ANY PRODUCTS OR ASSETS FOR INVESTMENT PURPOSES.

"PART-TIME INVESTMENT ADVISER" means AN INDIVIDUAL OR A FIRM, WHO FOR CONSIDERATION, IS ENGAGED IN THE BUSINESS OF PROVIDING INVESTMENT ADVICE AND IS ALSO ENGAGED IN ANY OTHER BUSINESS ACTIVITY OR EMPLOYMENT.

"PERSONS ASSOCIATED WITH INVESTMENT ADVICE" shall mean ANY MEMBER, PARTNER, OFFICER, DIRECTOR OR EMPLOYEE OR ANY SALES STAFF of such investment adviser, INCLUDING ANY PERSON OCCUPYING A SIMILAR STATUS OR PERFORMING A SIMILAR FUNCTION, IRRESPECTIVE OF THE NATURE OF ASSOCIATION with the investment adviser, WHO IS ENGAGED IN PROVIDING INVESTMENT ADVISORY SERVICES to the clients.

In plain words: anyone at the firm who gives advice to clients is covered. The job title does not matter, and neither does the type of link with the firm.

"PRINCIPAL OFFICER", in case of a non-individual investment adviser engaged:

(i) SOLELY in providing investment advisory services — the MANAGING DIRECTOR OR DESIGNATED DIRECTOR OR MANAGING PARTNER OR EXECUTIVE CHAIRMAN OF THE BOARD OR EQUIVALENT MANAGEMENT BODY, who is RESPONSIBLE FOR THE OVERALL FUNCTION OF THE BUSINESS AND OPERATIONS.

So in a firm that only gives advice, the principal officer is its top executive.

(ii) In activities OTHER THAN investment advisory services, through separate departments or divisions — may be THE PERSON AT THE MANAGEMENT LEVEL WHO IS A BUSINESS HEAD OR UNIT HEAD, responsible for the overall function of the business and operations RELATED TO INVESTMENT ADVISORY SERVICES.

In a firm that also does other business, it can be the head of the advisory unit instead.

Two provisos: in case of a PARTNERSHIP FIRM, ONE OF THE PARTNERS SHALL BE DESIGNATED AS ITS PRINCIPAL OFFICER. And: where NO PARTNER of a firm registered as an investment adviser has the minimum qualification and certification requirements, IT SHALL APPLY FOR REGISTRATION AS AN INVESTMENT ADVISER IN THE FORM OF A LIMITED LIABILITY PARTNERSHIP OR A BODY CORPORATE within such time as may be specified by SEBI.

The provisions of (i) also apply to the principal officer of a non-individual entity REGISTERED BOTH AS AN INVESTMENT ADVISER AND A RESEARCH ANALYST, PROVIDED THE ENTITY IS NOT ENGAGED IN ANY OTHER BUSINESS ACTIVITY.

18.6.2 Registration

That is worth underlining. There is no fixed expiry date and no periodic renewal — the certificate runs until SEBI ends it.

The thirteen matters SEBI takes into account for the grant of a certificate:

(a) Whether the applicant is an INDIVIDUAL OR A NON-INDIVIDUAL.

(b) If an INDIVIDUAL — whether HE AND ALL PERSONS ASSOCIATED WITH INVESTMENT ADVICE are appropriately qualified and certified as specified in regulation 7.

(c) If a BODY CORPORATE — whether THE PRINCIPAL OFFICER AND ALL PERSONS ASSOCIATED WITH INVESTMENT ADVICE are appropriately qualified and certified.

(d) If a FIRM OR LIMITED LIABILITY PARTNERSHIP — whether THE PRINCIPAL OFFICER AND ALL PERSONS ASSOCIATED WITH INVESTMENT ADVICE are appropriately qualified and certified.

(e) Whether the applicant fulfils the DEPOSIT REQUIREMENTS as specified in regulation 8.

(f) Whether the applicant, its partners, principal officer and persons associated with investment advice are FIT AND PROPER PERSONS, based on the criteria specified in SCHEDULE II OF THE SEBI (INTERMEDIARIES) REGULATIONS, 2008.

(g) Whether the applicant has the NECESSARY INFRASTRUCTURE to effectively discharge the activities of an investment adviser.

(h) Whether the applicant or any person directly or indirectly connected with the applicant HAS IN THE PAST BEEN REFUSED CERTIFICATE BY SEBI, and if so, the GROUNDS for such refusal.

(i) Whether ANY DISCIPLINARY ACTION has been taken by SEBI or any other regulatory authority against any person directly or indirectly connected to the applicant.

(j) In case a BANK OR AN NBFC proposes to undertake investment advisory services — whether IT HAS BEEN PERMITTED BY THE RESERVE BANK OF INDIA and the application is made THROUGH A SUBSIDIARY OR SEPARATELY IDENTIFIABLE DEPARTMENT OR DIVISION.

(k) In case of ANY NON-INDIVIDUAL OTHER THAN A BANK OR NBFC — whether the application is made THROUGH A SEPARATELY IDENTIFIABLE DEPARTMENT OR DIVISION.

(l) In case an ENTITY INCORPORATED OUTSIDE INDIA undertakes to provide investment advisory services — whether IT HAS SET UP A SUBSIDIARY IN INDIA and whether SUCH SUBSIDIARY HAS MADE THE APPLICATION FOR REGISTRATION.

(m) In case a FOREIGN CITIZEN proposes to undertake investment advisory services — whether the applicant HAS SET UP AN OFFICE IN INDIA and proposes to undertake investment advisory services THROUGH SUCH OFFICE.

Note the difference between (l) and (m). A foreign entity must set up an Indian subsidiary, which itself applies. A foreign citizen need only set up an office in India and work through it.

18.6.3 Exemption from registration

Not everyone who talks about investments needs to register. The list below shows who is let off, and why.

Certain categories of persons are EXEMPT from the requirement of registration:

Any person who gives GENERAL COMMENTS IN GOOD FAITH in regard to TRENDS IN THE FINANCIAL OR SECURITIES MARKET OR THE ECONOMIC SITUATION, WHERE SUCH COMMENTS DO NOT SPECIFY ANY PARTICULAR SECURITIES OR INVESTMENT PRODUCT.
Any INSURANCE AGENT OR INSURANCE BROKER who offers investment advice SOLELY IN INSURANCE PRODUCTS and is REGISTERED WITH IRDAI for such activity.
Any PENSION ADVISOR who offers investment advice SOLELY ON PENSION PRODUCTS and is REGISTERED WITH PFRDA for such activity.
Any DISTRIBUTOR OF MUTUAL FUNDS, who is a MEMBER OF A SELF-REGULATORY ORGANISATION RECOGNISED BY SEBI or is REGISTERED WITH AN ASSOCIATION OF ASSET MANAGEMENT COMPANIES OF MUTUAL FUNDS, providing any investment advice to its clients INCIDENTAL TO ITS PRIMARY ACTIVITY.
Any ADVOCATE, SOLICITOR OR LAW FIRM, who provides investment advice to their clients INCIDENTAL TO THEIR LEGAL PRACTICE.
Any member of the INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, INSTITUTE OF COMPANY SECRETARIES OF INDIA, INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA, ACTUARIAL SOCIETY OF INDIA or any other professional body as may be specified by SEBI, who provides investment advice INCIDENTAL TO HIS PROFESSIONAL SERVICE.
Any FUND MANAGER, by whatever name called, of a MUTUAL FUND, ALTERNATIVE INVESTMENT FUND OR ANY OTHER INTERMEDIARY OR ENTITY REGISTERED WITH SEBI.
Any person who provides investment advice EXCLUSIVELY TO CLIENTS BASED OUT OF INDIA.
Any PRINCIPAL OFFICER, PERSONS ASSOCIATED WITH ADVICE AND PARTNER of an investment adviser which is registered under these Regulations.
Any other person as may be specified by SEBI.

Four provisos qualify these exemptions, and every one has been examined:

Such intermediaries SHALL COMPLY WITH THE GENERAL OBLIGATIONS AND RESPONSIBILITIES SPECIFIED IN CHAPTER III of the Investment Adviser Regulations. Exemption from registration is not exemption from obligations.
An EXISTING PORTFOLIO MANAGER offering only investment advisory services MAY APPLY FOR REGISTRATION UNDER THESE REGULATIONS AFTER EXPIRY OF HIS CURRENT CERTIFICATE OF REGISTRATION AS A PORTFOLIO MANAGER.
On exemption 8: PERSONS PROVIDING INVESTMENT ADVICE TO NON-RESIDENT INDIANS OR PERSONS OF INDIAN ORIGIN SHALL FALL WITHIN THE PURVIEW OF the SEBI (Investment Advisers) Regulations, 2013. So "clients based out of India" does not include NRIs and PIOs.
On exemption 9: such principal officer, persons associated with advice and partner SHALL COMPLY WITH REGULATION 7, "Qualification and certification requirement".

Read the pattern in exemptions 2 to 6. Each turns on a single word: the advice must be SOLELY in that regulator's products, or INCIDENTAL to the primary professional activity. A chartered accountant who starts charging separately for stock advice has stepped outside "incidental", and needs registration.

Think of it like this

Three verbs in one preamble

The SEBI Act exists to protect the interests of investors, to promote the development of the securities market, and to regulate it. Every one of the fifteen measures — registering brokers, prohibiting insider trading, promoting investor education, levying fees, conducting research — traces back to one of those three verbs. If an exam option describes a function that fits none of them, be suspicious.

The manipulator who lost money

A trader spreads a false rumour to push a price up, and the market moves against him anyway. Has he committed fraud? Yes. Under PFUTP 2003, there may or may not be wrongful gain or avoidance of any loss; however, that is inconsequential in determining if fraud has been committed. The test is the inducement to deal, not the profit and loss account.

True, and still fraud

The fifth instance of fraud is a representation, WHETHER TRUE OR FALSE, made in a reckless and careless manner. A tipster who guesses a takeover and happens to be right has still acted fraudulently, because he had no basis for saying it. Truth is a defence to lying; it is not a defence to recklessness.

You can be an insider without knowing anyone

An "insider" is a connected person OR a person in possession of or having access to unpublished price sensitive information. The word is or. A printer who sees the unpublished results, a driver who overhears the board, a friend of a friend who is told — none of them is "connected", and all of them are insiders the moment the information is in their hands.

Two families, two definitions

"Family of client" is the individual client, DEPENDENT spouse, DEPENDENT children and DEPENDENT parents. "Family of an individual investment adviser" is the adviser, spouse, children and parents — with no dependency test at all. The net is cast wider around the adviser because that is where the conflict of interest lives: an adviser cannot route a commission through an independent, earning son.

The magazine column and the intraday tip

Two things are expressly carved out of "investment advice". Advice through newspaper, magazines, any electronic or broadcasting or telecommunications medium which is WIDELY AVAILABLE TO THE PUBLIC; and trading calls, meaning intraday, ultra-short duration, non-delivery based recommendations that are NOT PERSONALISED OR INVESTOR SPECIFIC. The common thread is that neither is aimed at a particular client.

The certificate with no expiry date

Most licences need renewal. An Investment Adviser certificate does not: the certificate of registration granted by SEBI shall be valid TILL IT IS SUSPENDED OR CANCELLED BY SEBI. What does need periodic renewal is the NISM certification, which must be freshly obtained before the expiry of the existing one to ensure continuity in compliance.

"Solely" and "incidental" — the two words that grant exemption

The insurance agent is exempt if he advises solely in insurance products; the pension advisor solely on pension products; the mutual fund distributor, the advocate and the chartered accountant if the advice is incidental to the primary activity. Start charging a separate fee for stock advice and neither word applies any more — you now need registration. And even exempt persons must comply with the general obligations in Chapter III.

Key terms in this chapter

Administration and supervision body: A wholly-owned subsidiary of a stock exchange recognised under Regulation 14 to administer and supervise Investment Advisers. BSE Administration and Supervision Limited holds this recognition.
Artificial Intelligence obligation: An adviser using AI tools, irrespective of scale and scenario of adoption, is solely responsible for the security, confidentiality and integrity of client data, the use of other data, the advice based on AI output, and legal compliance, and must disclose the extent of AI use.
Assets under advice: The aggregate net asset value of securities for which the investment adviser has rendered investment advice, irrespective of whether implementation services are provided by the adviser or concluded by the client directly or through others.
Bankrupt: Defined in Section 79(4) of the IBC as a debtor adjudged bankrupt by a bankruptcy order under Section 126, each partner of a firm against which such an order has been made, or any person adjudged an undischarged insolvent.
Bill of exchange: Under Section 5, an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or the bearer.
Cheque: Under Section 6, a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, including the electronic image of a truncated cheque and a cheque in electronic form.
Client level segregation: The rule that an individual investment adviser shall not provide distribution services and that a non-individual must segregate at group level, so the same client cannot be offered both advisory and distribution services within the group.
Contract under the Indian Contract Act: Defined in Section 2(h) as an agreement enforceable by law, requiring offer and acceptance, an intention to create legal relations, free consent, lawfulness, and parties capable of contracting.
Enhanced due diligence under Section 12AA: Obligations before each specified transaction to verify identity by Aadhaar authentication, examine ownership, financial position and sources of funds, and record the purpose and intended nature of the relationship. If the client fails, the transaction shall not be allowed.
Family of an individual investment adviser: The individual investment adviser, spouse, children and parents. Unlike family of client, there is no dependency qualifier.
Family of client: The individual client, dependent spouse, dependent children and dependent parents.
FATCA: The Foreign Account Tax Compliance Act, part of US tax regulations enacted through the Internal Revenue Service to prevent tax evasion by US nationals, whose primary goal is obtaining information about US persons from countries other than the USA.
Fiduciary capacity: The standard in which an investment adviser must act towards its clients, requiring disclosure of all conflicts of interest as and when they arise.
Fifteen-day rule: An investment adviser shall not enter into own-account transactions contrary to advice given to clients for fifteen days from the date of such advice, unless it gives the client a revised assessment at least 24 hours in advance.
Financial planning: Analysis of clients' current financial situation, identification of their financial goals, and developing and recommending financial strategies to realise such goals.
Fit and proper person: A criterion for the grant of registration, assessed on the basis specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008, applied to the applicant, its partners, principal officer and persons associated with investment advice.
Foreign Exchange Management Act, 1999: An Act to consolidate and amend the law relating to foreign exchange, external trade and payments, extending to the whole of India and to branches, offices and agencies outside India owned or controlled by a person resident in India, and to violations committed outside India.
Foreign Portfolio Investment: Investment by a person resident outside India in capital instruments amounting to less than 10 per cent of the post issue paid-up equity capital on a fully diluted basis, or of the paid up value of each series of capital instruments, of a listed Indian company.
Form 61B: The form in which a Reporting Financial Institution reports relevant information in respect of an account identified as a Reportable Account under the CRS framework.
Fraud under PFUTP Regulations: Any act, expression, omission or concealment committed to induce another person or his agent to deal in securities. There may or may not be wrongful gain or avoidance of loss, and that is inconsequential in determining whether fraud has been committed.
Guardian and Ward: Under the Guardian and Wards Act, 1890, a guardian is a person having the care of the person of a minor or of his property or both, and a ward is a minor for whose person or property or both there is a guardian.
Implementation services: Execution services an adviser may offer, subject to receiving no consideration at group or family level, using only direct schemes or products, charging no implementation fee, and leaving the client under no obligation to avail them.
In-principle registration: Registration granted to an individual investment adviser crossing three hundred clients or three crore rupees of annual fees, valid for three months to assist the transition to non-individual registration, after which the individual registration is surrendered.
Insider: Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, any person who is a connected person, or who is in possession of or has access to unpublished price sensitive information.
Insolvency and Bankruptcy Code, 2016: A single consolidated law for reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner, organised into five parts and applying also to personal guarantors to corporate debtors.
Investment advice: Advice relating to investing in, purchasing, selling or otherwise dealing in securities, and advice on an investment portfolio containing securities, whether written, oral or otherwise, for the benefit of the client, including financial planning. It excludes advice through media widely available to the public and trading calls.
Investment adviser: Any person who, for consideration, is engaged in the business of providing investment advice, including a part-time investment adviser or any person who holds himself out as an investment adviser, by whatever name called.
Investment adviser deposit: A sum specified by SEBI maintained with a scheduled bank and marked as lien in favour of the recognised supervisory body, available if the adviser fails to pay dues arising from arbitration and conciliation under the Online Dispute Resolution Mechanism.
Investor Charter for Investment Advisers: Introduced by SEBI circular dated 2 June 2025, requiring disclosure on websites and in offices, provision during client on-boarding, monthly public disclosure of complaint data by the 7th of the succeeding month, and setting out investor rights, responsibilities, Dos and Donts.
KYC Registration Agency: Under the SEBI (KYC Registration Agency) Regulations, 2011, a company formed and registered under the Companies Act and granted a certificate of registration, which obtains KYC documents of clients from intermediaries.
Money laundering: Disguising financial assets so they can be used without detection of the illegal activity that produced them, transforming the monetary proceeds of crime into funds with an apparently legal source.
Part-time investment adviser: An individual or firm who for consideration provides investment advice and is also engaged in any other business activity or employment. Such an adviser may have no more than seventy-five clients at any point of time.
Persons associated with investment advice: Any member, partner, officer, director, employee or sales staff of an investment adviser, including anyone of similar status or function, irrespective of the nature of association, engaged in providing investment advisory services to clients.
Principal officer: In a non-individual adviser solely providing advisory services, the managing director, designated director, managing partner, executive chairman or equivalent responsible for the overall business; where other activities are carried on, the business or unit head responsible for the advisory operations. In a partnership firm one partner must be designated as such.
Promissory note: Under Section 4 of the Negotiable Instruments Act, 1881, an instrument in writing, not being a bank-note or currency-note, containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of, a certain person or the bearer.
Record maintenance under IA Regulations: Eight categories of records, including KYC, risk profiling, suitability, client agreements, advice whether written or oral, signed and dated rationale, a client register, and communications with all clients including prospective clients, kept physically or electronically for a minimum of five years.
Regulation 15EB penalty: The penalty for an investment adviser failing to comply with SEBI regulations or directions: not less than Rs 1 lakh, extending to Rs 1 lakh for each day the failure continues, subject to a maximum of Rs 1 crore.
Reporting entity: Under Section 12 of PMLA, a banking company, financial institution, intermediary or person carrying on a designated business or profession, obliged to maintain transaction records and identity documents and furnish information to the Director.
Reporting Financial Institution: Defined in Rule 114F(7) as a financial institution resident in India excluding its branches outside India, and any branch located in India of a financial institution not resident in India, other than a non-reporting financial institution.
Risk profiling: The exercise determining the ability and willingness of an investor to assume risk, assessing attitude towards risk and possible loss and willingness to pursue an investment plan, with the profile communicated to the client and updated periodically.
SEBI Act, 1992: The Act establishing a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market, and setting out fifteen measures from registering intermediaries to prohibiting insider trading.
Section 3 of PMLA: The offence of money-laundering, covering anyone directly or indirectly attempting to indulge, knowingly assisting, being a party to or actually involved in concealment, possession, acquisition, use, or projecting or claiming proceeds of crime as untainted property. It is a continuing activity.
Securities Contracts (Regulation) Act, 1956: An Act to prevent undesirable transactions in securities, giving the Central Government regulatory jurisdiction over stock exchanges through recognition and continued supervision, over contracts in securities, and over listing of securities.
Specified transaction: Any cash withdrawal or deposit exceeding a prescribed amount, any foreign exchange transaction exceeding a prescribed amount, any high value imports or remittances, and such other transactions prescribed where there is high risk of money-laundering or terrorist financing.
Suitability: The requirement that advice be appropriate to the client's risk profile, supported by a documented selection process, with a reasonable basis that the recommendation meets objectives, that the client can bear the risks, and that the client has the experience and knowledge to understand them.
Third Schedule Code of Conduct: The code to be followed by all investment advisers at all times, covering honesty and fairness, diligence, capabilities, information about clients, information to clients, fair and reasonable charges, conflicts of interest, compliance, and the primary responsibility of senior management.
Trading calls: Intraday, ultra-short duration, non-delivery based recommendations other than hedging, or any recommendation related to securities that are not personalised or investor specific. They are not investment advice.

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Original explanatory writing based on the official NISM workbook for Series X-A, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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