SEBI has issued clear directives on what portfolio managers can and cannot claim regarding performance on their websites. This article explains the regulatory framework and compliance requirements.
The Regulatory Framework
SEBI's Directive
SEBI has asked portfolio managers not to make unrealistic and exaggerated claims about their performance and returns on their websites or through advertisements.
Reason for Directive
This came after SEBI found instances of PMS companies using superlative or unsubstantiated advertisements and claims on their websites or in public media about their past performance and returns. SEBI stated that such practices are potentially misleading for both existing and prospective clients by creating a false impression of PMS.
Action Required
In a letter sent to the Association of Portfolio Managers in India (APMI), SEBI directed PMS players to:
- Remove all misleading and exaggerated advertisements issued in the public domain
- Remove marketing materials distributed to clients
- Refrain from making any statements regarding their investment capabilities or historical returns that may mislead investors
- Verify all communications to ensure factual accuracy
- Adhere to the code of conduct under SEBI (Portfolio Managers) Regulations, 2020
What Portfolio Managers Can Claim
Factual Performance Data
Portfolio managers can claim factual performance data that is:
- Accurate and verifiable
- Calculated using TWRR methodology
- Net of all fees, taxes, and expenses
- Accompanied by appropriate benchmarks
Standard Disclaimers
All performance claims must include:
- "Past performance is not indicative of future results"
- "Performance related information provided herein is not verified by SEBI"
TWRR with Benchmark
Portfolio Manager shall present the TWRR of the IA along with the trailing return of the selected benchmark when communicating, advertising, publishing, or mentioning performance of an Investment Approach.
What Portfolio Managers Cannot Claim
Superlative Claims
Portfolio managers cannot use superlative or unsubstantiated advertisements and claims. This includes:
- "Best performing PMS"
- "No. 1 PMS"
- "Top performer"
Exaggerated Returns
Portfolio managers cannot make unrealistic and exaggerated claims about their performance and returns.
Unsubstantiated Claims
Claims about past performance and returns must be substantiated and verifiable.
Misleading Statements
Portfolio managers cannot make any statements regarding their investment capabilities or historical returns that may mislead investors.
False Impression
Any practice that creates a false impression of PMS is prohibited.
PaRRVA Framework
Performance Verification
SEBI has launched PaRRVA (Past Risk and Return Verification Agency), an independent verification mechanism that validates past performance claims made by registered market intermediaries.
Compliance Requirement
Performance numbers in any advertisement, pitch deck, brochure, mailer, website page or social post must now come from PaRRVA-verified data. All communications must carry the standard "past performance is not indicative of future results" line and include a link or QR code back to the firm's PaRRVA summary page.
Consequences of Non-Compliance
Regulatory Action
SEBI has clarified that this advisory does not preclude it from taking appropriate action against any entity found in violation.
Potential Penalties
Non-compliance can result in:
- Enforcement action by SEBI
- Monetary penalties
- Suspension or cancellation of registration
- Reputational damage
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on PMS website performance disclosure compliance. Our securities law experts help portfolio managers ensure accurate performance claims, implement compliant marketing practices, and maintain regulatory compliance. Contact us for guidance on performance disclosure and other regulatory matters.