Contract with clients and disclosures

(1) Agreement between the Portfolio Manager and its clients (a) Prior to taking up an assignment of management of funds and portfolio on behalf of a client, the portfolio manager shall enter into a written investment agreement with such client defining their relationship and set out their mutual rights, liabilities and obligations relating to management of portfolio containing the details as specified in Third Schedule. (b) The requirement for content of agreement as specified in Third Schedule shall not apply to the agreement between the portfolio managers and the large value accredited investors. (c) The portfolio manager may make investments in the securities of its related parties or its associates only after obtaining the prior consent of the client in such manner as may be specified by the Board from time to time. (d) The requirement for obtaining consent provided in clause (c) of this sub–regulation shall not apply to such portfolio managers as may be specified by the Board. (2) Disclosure Document (a) Prior to entering into an agreement with client as referred in sub–regulation (1), the portfolio manager shall provide to the client a Disclosure Document in digital format along with a disclosure document certificate in the format as may be specified by the Board from time to time. (b) The portfolio manager shall, upon receipt of a request from a client, provide a physical copy of the Disclosure Document without any cost. (c) The Disclosure Document shall inter alia include the following – i. the quantum and manner of payment of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly including in cases where such service is outsourced; ii. general and investment approach specific portfolio risks; iii. disclosure of related–party transactions as per accounting standards specified by the Institute of Chartered Accountants of India; iv. details of conflicts of interest related to services offered by group companies or associates of the portfolio manager; v. details of investment in the securities of its related parties or associates; vi. details of the diversification policy of the portfolio manager; vii. the requirement specified in sub–clause (v) and (vi) of this sub–regulation, shall not apply to such portfolio managers as may be specified by the Board provided that the Board may specify other disclosure requirements for such portfolio managers; viii. the audited financial statements of the portfolio manager for the immediately preceding three years; ix. the performance of the portfolio manager: a. the performance of a discretionary portfolio manager shall be calculated using ‘Time Weighted Rate of Return’ for th e immediately preceding three years and in such cases performance indicators shall also be disclosed; b. the portfolio manager may be allowed to disclose performance segregated on the basis of investment approach; (d) The contents of the Disclosure Document shall be certified by an independent chartered accountant, in the format as specified by the Board: i. at the time of grant of certificate of registration; and ii. annually, within six months from the end of the financial year. (e) The portfolio manager shall ensure that the Disclosure Document is updated annually within six months from the end of the financial year. (f) In the event of any material change, the portfolio manager shall update the Disclosure Document by way of an addendum and file the Disclosure Document, along with the addendum, with the Board within fifteen calendar days of the material change. (g) The portfolio manager shall file with the Board a copy of the Disclosure Document along with the certification of independent chartered accountant after grant of cert ificate of registration before circulating to any client and every year within six months from the end of the financial year. (h) The portfolio manager shall ensure that the latest Disclosure Document along with addendum, if any, is available on its website at all times and as soon as registration is granted. (i) The portfolio manager shall disclose any material change in the Disclosure Document to the clients within fifteen calendar days of effecting the change. (3) Charging of fees by the portfolio manager (a) The portfolio manager shall charge an agreed fee from the clients for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and the fee so charged may be a fixed fee or a return based fee or a combination of both. (b) The portfolio manager shall not charge, directly or indirectly, any up–front fees from the clients. (c) The portfolio manager shall disclose the range of fees charged under various heads in the disclosure document.