The net worth requirement is a cornerstone of the regulatory framework for Portfolio Managers in India. This article provides a comprehensive explanation of the ₹5 crore net worth requirement, its calculation, and the compliance obligations for Portfolio Managers.
The Regulatory Mandate
Legal Basis
Regulation 9 of the SEBI (Portfolio Managers) Regulations, 2020 provides that the net worth referred to in clause (g) of regulation 7 shall not be less than five crore rupees. This requirement is designed to ensure that only financially robust entities manage public funds, safeguarding investor interests.
Ongoing Compliance
The portfolio manager must fulfill the net worth requirements under these regulations, separately and independently, of the capital adequacy requirements for each activity undertaken under the relevant regulations. The net worth must be maintained at all times during the period of the certificate.
Definition of Net Worth
Statutory Definition
Net worth means the aggregate value of paid-up equity capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off.
Components of Net Worth
Inclusions:
- Paid-up equity capital
- Free reserves (excluding reserves created out of revaluation)
Exclusions/Deductions:
- Accumulated losses
- Deferred expenditure not written off
- Miscellaneous expenses not written off
Calculation of Net Worth
Format for Net Worth Statement
The statement of net worth must be presented in the following format:
| Particulars | Amount (₹ in crores) |
|---|---|
| Paid-up equity capital | XXX |
| Add: Free reserves (excluding reserves created out of revaluation) | XXX |
| Less: Accumulated losses | (XXX) |
| Less: Deferred expenditure not written off | (XXX) |
| Less: Minimum Capital Adequacy / Net worth requirement for any other activity undertaken under other SEBI regulations | (XXX) |
| Net Worth | XXX |
Practical Example
If a portfolio manager has:
- Paid-up equity capital: ₹3 crore
- Free reserves: ₹2.5 crore
- Accumulated losses: ₹0.3 crore
- Deferred expenditure: ₹0.2 crore
The net worth would be: ₹3 + ₹2.5 - ₹0.3 - ₹0.2 = ₹5 crore
Compliance Requirements
Net Worth Certificate
Every portfolio manager shall furnish to SEBI a net worth certificate issued by a chartered accountant as and when required by SEBI. This certificate must be based on audited accounts.
Submission Timeline
Portfolio managers are required to submit a certificate from the qualified Chartered Accountant certifying the net worth as on March 31, every year based on audited account within 6 months from the end of the Financial Year.
Separate and Independent Fulfillment
The portfolio manager must fulfill the net worth requirements under the PM Regulations separately and independently of the capital adequacy requirements for each activity undertaken under the relevant regulations.
Consequences of Non-Compliance
Regulatory Action
SEBI has taken action against portfolio managers who fail to maintain the minimum net worth requirement. The regulator has emphasized that the ₹5 crore net-worth requirement is critical to ensure that only financially robust entities manage public funds.
Possible Penalties
Non-compliance can result in:
- Restrictions on onboarding new clients
- Monetary penalties
- Suspension or cancellation of registration
- Other enforcement actions under the SEBI Act
Proposed Changes
SEBI has proposed reducing the minimum net worth requirement for portfolio manager applicants from ₹5 crore to ₹2 crore. This proposal is part of a broader review aimed at improving accessibility while maintaining an appropriate regulatory framework. As of 2026, this proposal is under consultation and the ₹5 crore requirement remains applicable.
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on net worth compliance for portfolio managers. Our securities law experts help clients understand net worth requirements, calculate net worth correctly, and ensure ongoing compliance. Contact us for guidance on net worth compliance and other regulatory matters.