Sebi on Friday came up with guidelines related to performance reporting and benchmarking by portfolio managers. Managers have to adopt equity, debt, hybrid and multi-asset strategies. A portfolio manager may tag more than one investment approach (IA) to a strategy, but each IA must be tagged to only one strategy.
Industry body Association of Portfolio Managers in India (APMI) shall prescribe a maximum of three benchmarks for each strategy, which will reflect the core philosophy of the strategy. The manager has to select one benchmark from those prescribed for that strategy. This will enable investors to evaluate relative performance of the portfolio managers.
Once an IA is tagged to a strategy and/or to a benchmark, the tagging shall be changed only after offering an option to subscribers to the IA to exit without any exit load.
“This is a great move by the regulator to create clear distinct categories of products and more transparency for clients by selecting appropriate benchmarks. Having relevant benchmarks helps in fair evaluation of the strategy and in reflecting its true performance,” said Siddharth Vora, head of investment strategy and fund manager, PMS, Prabhudas Lilladher.
“There are a mind-boggling number of PMS schemes right now and fund managers are free to choose their own benchmarks. The current norms will help bucket the schemes based on the four strategies, each of which will have their own benchmarks. This will help customers assess the performance of the schemes better,” said Sameer Kamdar, founder and CEO of Smart Money.
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APMI will prescribe standardized valuation norms for portfolio managers on similar lines as that for mutual funds. Valuation of the portfolio debt and money market securities by portfolio managers shall be carried out in accordance with these standardised valuation norms prescribed by APMI.
Portfolio managers will present the time-weighted rate of return of the IA along with the trailing return of the selected benchmark when communicating the performance of an IA. Managers will present the extended internal rate of return while reporting the performance to an investor.
Portfolio managers have to disclose relative performance of their investment approach in every marketing material where performance of the concerned investment approach is presented. Such disclosure shall include performance relative to the selected benchmark and to other portfolio managers within the selected strategy.