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SEBI has made it compulsory for portfolio managers (PMS) to obtain consent of their clients before investing in companies that are directly or indirectly associated with them. Even after taking the consent, portfolio managers can invest a maximum of 30% of the client's portfolio in such companies.
Additionally, the regulator has set a 15% investment limit in a single associate or related company and prohibited PMS entities from making any investment in unlisted and unrated securities of associated companies.
The regulations are not applicable on investments in these companies through mutual funds.
According to the circular, investors can choose to reduce the limit while providing the consent.
In case of passive breach of the specified limits, PMS firms have to do a rebalancing within 90 days. They can skip the rebalancing if client allows them to.