When you commit a minimum of ₹50 lakh to a Portfolio Management Service, you are placing significant capital into a structure fundamentally different from a mutual fund. Your securities sit in your own demat account. Your fund manager takes positions that generate direct tax consequences for you. Every gain and every loss flow through your personal PAN. The question any prudent HNI should ask is not just which PMS to choose, but what guardrails exist around the industry itself.
The Securities and Exchange Board of India has constructed a detailed regulatory framework specifically for portfolio managers. Understanding it is not a compliance exercise. It is a core part of your investment due diligence.
SEBI’s jurisdiction over portfolio managers originates from the SEBI (Portfolio Managers) Regulations, 2020, which replaced the older 1993 framework and significantly tightened the rules governing who can operate, how they must communicate with clients, and what they must disclose.
The central objective of these regulations is investor protection. SEBI recognised that HNI investors, while sophisticated, are not institutional players with dedicated compliance teams. They need a transparent, enforceable framework when they delegate discretion over their portfolios to a professional manager.
There are currently over 400 SEBI-registered portfolio managers operating in India. That scale of demand is precisely why oversight matters. Without a structured framework, distinguishing a genuinely capable manager from one with a compelling sales pitch becomes nearly impossible.
Registration with SEBI is not a formality. To obtain a certificate of registration, a firm must satisfy several non-negotiable conditions.
Net Worth Requirement:
A portfolio manager must maintain a minimum net worth of ₹5 crore at all times. This capital adequacy requirement ensures that only financially stable entities enter the space.
Principal Officer Qualification:
Every firm must designate a Principal Officer who bears regulatory accountability. This individual must hold a post-graduate degree in finance, law, accountancy, or economics, and carry a minimum of five years of relevant experience. SEBI holds this officer personally accountable for adherence to the regulations.
Segregated Client Accounts:
SEBI mandates that every client’s portfolio be maintained in a separate demat account and a separate bank account in the client’s own name. A portfolio manager cannot pool your assets with other clients. Your capital is yours legally and operationally at all times.
Agreement and Disclosure Document:
Before accepting a single rupee, a registered portfolio manager must provide you with a Disclosure Document detailing the investment approach, risk factors, fees, and conflicts of interest. You must sign a clear, written agreement before any management begins.
One of the most investor-friendly changes introduced in 2020 was the standardisation of performance reporting. Prior to these norms, different managers reported returns using different methodologies, making meaningful comparison nearly impossible.
Today, SEBI mandates that all PMS performance data be reported using the Time Weighted Rate of Return (TWRR) methodology net of all fees and expenses. A manager reporting 22% gross returns with 2.5% in fees is delivering something meaningfully different from one reporting 20% net. TWRR standardisation ensures you are comparing apples to apples across competing strategies.
SEBI also requires portfolio managers to publish a monthly report card on portfolio composition, and clients receive quarterly reports covering transaction history, fees charged, and portfolio valuation.
Several provisions in the PMS framework operate quietly but carry significant weight.
Discretionary vs. Non-Discretionary Services: SEBI classifies PMS into three categories: discretionary, non-discretionary, and advisory. In a discretionary PMS, the manager takes all investment decisions independently. In a non-discretionary PMS, your approval is required before every transaction. Understanding which service you are enrolled in determines how much control you retain over day-to-day management.
Code of Conduct:
Every SEBI-registered portfolio manager is bound by a statutory code of conduct that prohibits front-running, portfolio churning to generate higher fees, misuse of client funds, and misleading performance claims. Violations can result in suspension of registration, financial penalties, and prosecution.
Redressal Mechanism:
In the event of a dispute, SEBI’s SCORES platform provides a structured avenue to file complaints against registered portfolio managers, ensuring your concerns cannot be quietly dismissed.
| Protection | What It Covers |
| Segregated accounts | Your capital is never commingled with other clients |
| TWRR disclosure | Net-of-fee, standardised performance reporting |
| Code of conduct | Prohibits churning, front-running, misleading claims |
| SCORES redressal | Formal dispute resolution against any registered PMS |
SEBI registration confirms that a manager has met entry criteria and operates within the regulatory perimeter. It does not guarantee investment performance, validate the quality of the research process, or protect you from losses arising from poor portfolio construction.
The regulations set the floor. Your due diligence must do the rest. A firm may hold a valid registration, maintain clean disclosures, and still operate a strategy that lacks depth or consistency. Regulatory compliance is a necessary condition for investing but it is far from sufficient. Evaluating rolling returns, risk-adjusted metrics, maximum drawdown, and the underlying investment philosophy remains your responsibility.
At Carnelian Asset Management, we operate as a SEBI-registered portfolio manager in compliance with the SEBI (Portfolio Managers) Regulations, 2020. Our PMS strategies spanning the Capital Compounder, Shift, Contra, and Bespoke approaches are built on a documented investment process, transparent reporting, and genuine alignment of interest with our investors.
If you are evaluating your first PMS allocation or reassessing an existing one, we welcome a conversation about how a structured, research-driven approach to portfolio management works in practice.
Explore our PMS strategies at carneliancapital.co.in
