Multi-asset and fixed income strategies are important components of portfolio management services. This article explains the structuring considerations, regulatory classification, and compliance requirements.
Regulatory Classification
Broad Strategies
SEBI has classified PMS investment strategies into four broad categories:
- Equity: Primarily equity investments
- Debt: Primarily fixed income investments
- Hybrid: Combination of equity and debt
- Multi-Asset: Investment across multiple asset classes
Multi-Asset Strategy
Multi Asset strategy shall include at least 3 asset classes. This provides diversification across different asset classes.
Fixed Income Strategy
Fixed income strategies focus on debt instruments and may include:
- Corporate bonds
- Government securities
- Money market instruments
- Structured debt products
Investment Approach Tagging
Strategy Tagging
Each Investment Approach must be tagged to one and only one Strategy.
Documentation
The investment approach must be documented and include:
- Investment objective
- Types of securities
- Basis of selection
- Allocation across asset classes
- Appropriate benchmark
- Indicative tenure
- Risks
Fixed Income Strategy Considerations
Eligible Instruments
Fixed income strategies may invest in:
- Corporate bonds and debentures
- Government securities
- Commercial paper
- Certificates of deposit
- Other money market instruments
Risk Factors
Fixed income strategies are subject to:
- Interest rate risk
- Credit risk
- Liquidity risk
- Reinvestment risk
Disclosures
Fixed income strategies must disclose:
- Credit rating of securities
- Maturity profile
- Yield to maturity
- Duration
Multi-Asset Strategy Considerations
Asset Classes
Multi-asset strategies invest across:
- Equity
- Fixed income
- Commodities
- Other asset classes
Asset Allocation
The strategy will follow a largely top-down asset allocation approach.
Risk Management
Multi-asset strategies rely on tactical diversification across asset classes to reduce volatility and manage risk.
Benchmarking
Benchmark Selection
For each Strategy, the portfolio manager must select one benchmark from those prescribed.
Performance Reporting
Portfolio managers must disclose:
- Performance relative to selected benchmark
- Performance relative to other portfolio managers within the selected Strategy
Disclosure Requirements
Investment Approach Disclosure
The investment approach must disclose:
- Investment objective
- Types of securities
- Basis of selection
- Allocation
- Benchmark
- Indicative tenure
- Risks
Performance Disclosure
Portfolio managers must disclose:
- Performance of the investment approach
- Performance relative to benchmark
- Performance relative to peers
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on PMS strategy structuring and compliance. Our securities law experts help clients design compliant investment strategies, prepare disclosure documents, and ensure regulatory compliance. Contact us for guidance on strategy structuring and other regulatory matters.