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Capital Market and Securities Laws · Securities Market Intermediaries

Portfolio Managers, Mutual Funds and Investment Advisers under SEBI

Updated 11 October 2026 · Fact-checked

These are three SEBI-registered intermediaries. A portfolio manager manages a client's money or securities under a contract. A mutual fund pools investor money in schemes run through a sponsor, trustee and AMC. An investment adviser gives investment advice for a fee. Each needs SEBI registration under Section 12 of the SEBI Act.

Understand Portfolio Managers, Mutual Funds and Investment Advisers

Start with the core rule. Under Section 12 of the SEBI Act, 1992, a portfolio manager, investment adviser and similar intermediary cannot buy, sell or deal in securities except under a certificate of registration from SEBI, and in line with its conditions. Registration is made under SEBI regulations. Applications go in the manner and with the fees set by regulations.

A portfolio manager manages money or securities for a client under a contract. The client's goals are set in the contract. The manager acts for the client and takes the decisions in the way agreed. A discretionary manager decides on the client's behalf. A non-discretionary manager acts only with the client's direction. Treat this split as the usual teaching point and confirm the exact terms from the regulations in your study material.

A mutual fund pools money from many investors and invests it in securities under schemes. The usual structure has three parts. The sponsor sets up the fund. The trustees hold the fund property for unit holders and oversee it. The asset management company (AMC) manages the schemes. Investors hold units and share the profits and risks in proportion. Section 12(1B) requires a certificate of registration from SEBI to sponsor or carry on a mutual fund.

An investment adviser gives advice on investing in securities, usually for a fee. A research analyst prepares research reports or recommendations on securities. Both are regulated by SEBI through its regulations. Under Section 15EB, if either fails to comply with SEBI regulations or directions, the penalty is at least ₹1,00,000, extendable at ₹1,00,000 for each day of failure, up to a maximum of ₹1,00,00,000.

The key contrast for exams: the portfolio manager manages and deals in the client's portfolio. The adviser only advises. The mutual fund pools many investors' money and spreads it across a scheme. SEBI can suspend or cancel any registration under Section 12(3), but only after giving the person a reasonable opportunity of being heard.

Key rules to remember

Registration rule
No portfolio manager / investment adviser may deal in securities without a SEBI certificate of registration (Section 12(1))
Dealing must be under and in accordance with the conditions of the certificate, obtained under SEBI regulations.
Mutual fund registration
Sponsoring or carrying on a mutual fund or venture capital fund needs SEBI registration (Section 12(1B))
The Act makes CIS and mutual funds a registration matter. Mutual fund contributions are excluded from the CIS definition in Section 11AA(3)(viii).
Suspension or cancellation
SEBI may suspend or cancel registration by order, after a reasonable opportunity of being heard (Section 12(3))
The procedure is set by regulations. Always mention the hearing.
Penalty for advisers and analysts
Section 15EB: not less than ₹1,00,000, up to ₹1,00,000 per day of failure, maximum ₹1,00,00,000
Applies to failure to comply with SEBI regulations or directions.
Penalty: mutual fund without registration
Section 15D(a): not less than ₹1,00,000, up to ₹1,00,000 per day, maximum ₹1,00,00,000
Sections 15D(b) to (f) use the same range for other mutual fund defaults, such as breach of registration terms, failure to list, to despatch unit certificates, to refund application money or to invest as specified.
Mutual fund structure
Sponsor → Trust (trustees) → AMC → Schemes → Unit holders
Know the role of each constituent.

How to solve Portfolio Managers, Mutual Funds and Investment Advisers questions

Use this method for any question on portfolio managers, mutual funds or investment advisers.

  1. 1Identify the intermediary in the question: portfolio manager, mutual fund, investment adviser or research analyst.
  2. 2State the provision: SEBI registration is required under Section 12, and the activity must follow the certificate's conditions.
  3. 3Define the intermediary's role in one or two lines, using the contract, pooling or advice test.
  4. 4Apply the facts: did the person deal or advise without registration, or breach a condition or SEBI direction?
  5. 5Name the consequence: penalty under Section 15EB or 15D, or suspension or cancellation under Section 12(3) after a hearing.
  6. 6Close with a clear conclusion that answers the question asked.

Quickest way: Role, registration, penalty

When to use it: Use it for short notes and case-style questions when time is short.

  1. Write the role in one line.
  2. Write the registration rule with Section 12.
  3. Write the penalty section and range if default is involved.
  4. Add the hearing safeguard if suspension or cancellation is involved.
  5. Write a one-line conclusion.

Common mistakes in Portfolio Managers, Mutual Funds and Investment Advisers

  • Treating a portfolio manager and an investment adviser as the same

    Both deal with client investments and both are registered with SEBI.

    Fix: Remember that the manager manages the portfolio under a contract. The adviser only advises for a fee.

  • Leaving out the trustee or the AMC when explaining mutual fund structure

    Students remember only the sponsor and the scheme.

    Fix: Write sponsor, trustees, AMC and unit holders, with one function for each.

  • Quoting the wrong penalty for advisers

    Penalty ranges under different sections look similar.

    Fix: Section 15EB covers investment advisers and research analysts. Section 15D covers mutual fund defaults. Both give a minimum of ₹1,00,000 and a maximum of ₹1,00,00,000.

  • Saying SEBI can cancel registration straight away

    Students forget the natural justice safeguard.

    Fix: Write that Section 12(3) requires a reasonable opportunity of being heard before any suspension or cancellation order.

  • Treating a mutual fund as a collective investment scheme

    Both pool investor money.

    Fix: Section 11AA(3)(viii) excludes contributions in the nature of subscription to a mutual fund from the CIS definition. Each has its own regulations.

Worked examples

Example 1

Rohit offers to manage the securities of several clients and take decisions for them, but he has no SEBI registration. Advise whether he can do so and state the consequence.

Show the solution
  1. Rohit would act as a portfolio manager, which is an intermediary named in Section 12(1) of the SEBI Act, 1992.
  2. Section 12(1) bars such an intermediary from buying, selling or dealing in securities except under a certificate of registration from SEBI, in accordance with its conditions.
  3. Rohit has no certificate, so his dealing breaches the requirement.
  4. SEBI can take action under the Act and its regulations. Any registration, once granted, can be suspended or cancelled only after a reasonable opportunity of being heard under Section 12(3).

Answer: Rohit cannot act as a portfolio manager without SEBI registration. Doing so breaches Section 12(1) and exposes him to SEBI's enforcement action.

Example 2

An investment adviser repeatedly ignores SEBI's direction for 12 days. What penalty may SEBI impose under Section 15EB, and what is the upper limit?

Show the solution
  1. Section 15EB applies where an investment adviser fails to comply with SEBI regulations or directions.
  2. The penalty is at least ₹1,00,000 and may extend to ₹1,00,000 for each day the failure continues, subject to a maximum of ₹1,00,00,000.
  3. For 12 days the daily ceiling gives 12 × ₹1,00,000 = ₹12,00,000.
  4. This is below the overall cap of ₹1,00,00,000, so the cap does not apply here.

Answer: SEBI can impose a penalty of at least ₹1,00,000 and up to ₹12,00,000 for the 12 days. The overall cap of ₹1,00,00,000 is not reached.

Exam tips

  • Begin answers with Section 12 whenever registration of an intermediary is the issue.
  • Draw the mutual fund structure as a short chain and give one line on each constituent.
  • Learn the Section 15EB and 15D penalty range as one figure set: ₹1,00,000 minimum, ₹1,00,000 per day, ₹1,00,00,000 maximum.
  • In difference questions, use a list of points: role, contract or fee, decision-making and risk bearer.
  • Mention the hearing requirement every time you write on suspension or cancellation.

Practice questions from Securities Market Intermediaries

Portfolio Managers, Mutual Funds and Investment Advisers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Portfolio Managers, Mutual Funds and Investment Advisers: frequently asked questions

What is the difference between a portfolio manager and an investment adviser?

A portfolio manager manages a client's money or securities under a contract and can act on the client's behalf as agreed. An investment adviser only gives advice, usually for a fee. Both need SEBI registration.

Who are the constituents of a mutual fund?

The main constituents are the sponsor, the trustees and the asset management company. The sponsor sets up the fund, the trustees hold the fund property for unit holders and oversee it, and the AMC manages the schemes.

Which section requires registration of these intermediaries?

Section 12 of the SEBI Act, 1992. Section 12(1) covers portfolio managers and investment advisers. Section 12(1B) covers venture capital funds and collective investment schemes including mutual funds.

What is the penalty under Section 15EB?

It applies to an investment adviser or research analyst that does not comply with SEBI regulations or directions. The penalty is at least ₹1,00,000 and may go up to ₹1,00,000 per day of failure, with a cap of ₹1,00,00,000.