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Portfolio managers are not accountable for securities held by clients outside their PMS arrangement, SEBI said in an informal guidance to a PMS manager.
The statement was in response to a query by Club Millionaire Financial Services, a PMS player which sought to know if it should take clients' personal holdings into account when calculating the total exposure to a particular company.
"(We wanted to know) whether the portfolio manager is accountable for the securities held by the PMS investors outside its PMS arrangement?" The PMS manager had asked SEBI through a letter.
Club Millionaire shared a specific case to express the confusion it was facing. The company said that in 2020 it had added equity shares of CDSL in demat accounts of clients and all together the exposure was around 2%. However, when the holdings outside the PMS arrangements were taken into consideration, the exposure amounted to 4.7% of the total equity capital of CDSL, the PMS firm said.
In response, SEBI said, "A portfolio manager advises or directs or undertakes on behalf of the client, the management and administration of portfolio of the clients. Moreover, PMS Regulations requires the portfolio managers to enter into an agreement with the client which defines their relationship, inter se, and sets out their mutual rights, liabilities and obligations. In case the securities are purchased outside the said PMS arrangement, the portfolio manager and its client may not be said to be PACs (Person acting in Concert). Accordingly, a portfolio manager may not be held accountable for securities held by its clients outside the PMS arrangement.”