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Sebi cautions investors against funds raised by unauthorised PMS providers

New Delhi, October 3, 2022

Capital markets regulator Sebi on Monday cautioned investors against unauthorised money mobilisation by entities claiming to provide portfolio management services.

Further, the regulator noted that these entities have been luring the public, with a promise of high returns, through pamphlets and social media platforms. It was observed that in such schemes, the entities have been mobilising money in relatively smaller amounts and promising assured returns, Sebi said in a statement.

The advisory comes after the Securities and Exchange Board of India (Sebi) noted that some entities are collecting money from the public claiming to provide portfolio management services.

Some of the entities have names similar to that of Sebi-registered intermediaries, misleading the public, as though the fund raising is genuine and done by entities registered with the regulator.

Sebi, therefore, cautioned "investors not to fall prey to such unauthorised money collection" and advised them to deal only with Sebi-registered intermediaries while investing in the securities market.

Further, Sebi-registered intermediaries, including portfolio managers (who manage portfolio management schemes) cannot offer products with assured or fixed return on investment. Many such unauthorised schemes are run like ponzi schemes without any real investment made in the securities market.

Accordingly, the regulator has advised investors "to do proper due diligence before trusting their money in such unauthorized schemes".

Under the portfolio managers rule, a portfolio manager will have to be registered with Sebi and need to have an agreement with a client to undertake management or administration of a portfolio of securities or funds of the client.

Further, a portfolio manager cannot accept funds or securities worth less than Rs 50 lakh from the client and cannot promise any guaranteed or assured return, either directly or indirectly as per the norms.

[The Business Standard]

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