- Circular limits PM’s investment in its associate and related party.
- Limits will not apply to investments in Mutual Funds
- Portfolio Manager will have to seek prior consent of the clients before making investment
SEBI has issued a Circular for Portfolio Managers. Circular limits PM’s investment in its associate and related party. According to the Circular, a Portfolio Manager (PM) may invest up to 30% of their client’s portfolio (as a percentage of the client’s assets under management) in securities of their own associates/related parties.
Circular limits investment in a single associate or related party to 15% in equity and 15% in debt and hybrid securities. The maximum investment in multiple associated parties is 25% in each of the equity and debt categories, subject to maximum combined cap of 30%.
Limits will apply only to direct investments by Portfolio Managers in equity, debt, and hybrid securities of their own associates and related parties, not to investments in Mutual Funds.
Under the hybrid category, units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will be considered.
On the compliance side, SEBI requires Portfolio Manager to seek prior consent of the clients before making investment. Under the compliance mandate, PM will invest in the securities of its related parties or associates only after obtaining the client’s prior consent in the manner specified by SEBI, including obtaining the client’s one-time prior positive consent.
The aforementioned consent shall be obtained for new clients at the time of entering into agreement, whereas the aforementioned consent shall be obtained for existing clients through the execution of a supplementary agreement with the clients.
Portfolio Manager shall not invest in securities with credit ratings below investment grade. In the case of a non-discretionary portfolio, however, PM may invest up to 10% of such clients’ assets under management in unlisted unrated securities of issuers who are not PM’s associates/related parties.
Galactik Views