The concept of a "model portfolio" was introduced in the RA Regulations through the 2024 amendments. Understanding what constitutes a model portfolio is essential for compliance. This article provides a comprehensive technical analysis of the definition of a model portfolio and when a summary is not considered a model portfolio.
Regulatory Basis
Definition
Regulation 2(1)(wa) includes in the definition of "research services":
- "Recommending model portfolio"
Model Portfolio Definition
The Annexure-A of the Master Circular for Research Analysts defines "Model Portfolio" as:
"A 'model portfolio' shall mean a basket of securities for which a research report is issued by a RA recommending the relevant weightages for one or more securities mentioned therein."
Key Elements of a Model Portfolio
1. Basket of Securities
A model portfolio must contain a basket of securities.
- Multiple securities.
- Not just one security.
2. Research Report
A model portfolio must be issued through a research report.
- The research report contains the model portfolio.
- The research report must comply with all RA Regulations.
3. Weightages
A model portfolio must have recommended weightages for the securities.
- Weightages must be specified.
- Weightages must be clearly stated.
4. One or More Securities
A model portfolio must include one or more securities.
- At least one security.
- Can be multiple securities.
When a Summary is NOT a Model Portfolio
Explanation
"If the research report does not ascribe weightages to the components of basket of securities, then merely a summary or consolidated presentation of securities recommended shall not be regarded as a 'model portfolio'."
What is NOT a Model Portfolio
| Scenario | Is it a Model Portfolio? | Reasoning |
|---|---|---|
| List of recommended stocks without weightages | No | No weightages |
| Consolidated presentation of recommended stocks | No | No weightages |
| Summary of stock recommendations | No | No weightages |
| A report recommending multiple stocks without weightages | No | No weightages |
| A research report with stock recommendations and weightages | Yes | Weightages provided |
Examples
Example 1: Model Portfolio
"Model Portfolio for FY2026:
| Security | Weightage |
|---|---|
| HDFC Bank | 25% |
| Reliance Industries | 20% |
| Infosys | 15% |
| ICICI Bank | 15% |
| Tata Consultancy Services | 10% |
| Larsen & Toubro | 10% |
| Cash | 5% |
This is a model portfolio with specified weightages for each security."
Example 2: NOT a Model Portfolio
"Recommended Stocks for FY2026:
- HDFC Bank - Reliance Industries - Infosys - ICICI Bank - Tata Consultancy Services - Larsen & Toubro
This is a summary of recommended stocks without weightages. It is NOT a model portfolio."
Example 3: NOT a Model Portfolio
"Top 10 Stock Picks for FY2026:
1. HDFC Bank 2. Reliance Industries 3. Infosys 4. ICICI Bank 5. Tata Consultancy Services 6. Larsen & Toubro 7. Axis Bank 8. Kotak Mahindra Bank 9. Bajaj Finance 10. Maruti Suzuki
This is a list of recommended stocks without weightages. It is NOT a model portfolio."
Compliance Requirements for Model Portfolios
1. Research Report
Model portfolio must be issued through a research report.
2. Weightages
Model portfolio must have specified weightages.
3. Disclosures
Model portfolio must include all required disclosures.
4. Methodology
Model portfolio must have a defined methodology.
5. Audit
Model portfolio compliance must be part of the annual compliance audit.
Common Compliance Gaps
1. Treating Summary as Model Portfolio
Some RAs treat a summary of recommendations as a model portfolio.
Solution: Ensure weightages are specified for a model portfolio.
2. No Weightages
Some RAs provide recommendations without weightages but call it a model portfolio.
Solution: Weightages are required for a model portfolio.
3. Not Issuing Through Research Report
Some RAs issue model portfolios without a research report.
Solution: Issue model portfolios through a research report.
Conclusion and How Anuj Desai & Associates Can Help
Understanding the definition of a model portfolio is essential for compliance.
Anuj Desai & Associates offers specialized services to help RAs comply with model portfolio requirements:
- Review of model portfolio definitions and structures.
- Guidance on weightages and disclosures.
- Compliance audit and advisory.
Contact us today to ensure your model portfolios comply with SEBI requirements. Our team will review your portfolios and provide a tailored compliance roadmap.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for legal and compliance matters. Anuj Desai & Associates is a SEBI compliance consulting firm based in India.