NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Operational Aspects of Portfolio Managers

Portfolio Management Agreement and Disclosure Document for PMS

Updated 11 October 2026 · Fact-checked

The disclosure document is the portfolio manager's information booklet. It is given to a prospective client before the agreement is signed. The portfolio management agreement is the binding contract that sets out services, fees, risks, term and termination. Exam questions test which one comes first, what each contains and how they differ.

Understand Portfolio Management Agreement and Disclosure Document

A portfolio manager handles large sums for clients. So SEBI wants the client to know who they are dealing with and what the terms are, in writing, before any money is managed. Two documents do this job.

The disclosure document is about the portfolio manager. It tells the prospective client about the manager's business, its promoters and directors, its services, investment approaches, fees and expenses, risk factors, past performance, litigation and associates. It follows a format prescribed by SEBI and is filed with SEBI with a certificate by the portfolio manager. Think of it as the information you read before you decide.

The portfolio management agreement is about the relationship. It is a contract between the portfolio manager and the client. It records the type of service (discretionary, non-discretionary or advisory), the investment approach, the amount or securities handed over, fees, the period, how accounts are settled and how either side can end the arrangement. It must follow the format SEBI prescribes in the Portfolio Managers Regulations, 2020, and its terms cannot go against those regulations.

The order matters. The client receives the disclosure document first, has time to read it, and only then signs the agreement. The manager cannot start managing funds until the agreement is in place.

A simple way to remember: the disclosure document informs, the agreement binds. The first describes the manager. The second fixes the rights and duties of both parties.

Key formulas to remember

Order of documents: Disclosure document → client reads it → agreement signed → funds or securities accepted and managed; The disclosure document always comes before the agreement. The manager cannot act for the client without an agreement.
Purpose test: Disclosure document = information about the portfolio manager; Agreement = contract between manager and client; Use this to sort any option that says which document contains what.
Agreement core terms: Service type + investment approach + funds/securities handed over + fees + risks + period + settlement + termination; These are the themes the agreement must cover. Service types are discretionary, non-discretionary and advisory.
Disclosure document core content: Manager background + services + approaches + fees and expenses + risk factors + performance + litigation + associates + taxation and accounting policies; This is information about the manager and the offer, not the client's personal terms.
Minimum investment: ₹50 lakh per client (₹50,00,000), in funds or securities; This is the general minimum under the 2020 Regulations. Accredited investors are treated differently. Confirm the exact exemption in your workbook.

How to solve Portfolio Management Agreement and Disclosure Document questions

Most questions ask you to name the right document, the right order, or the right content. Use the same method every time.

1Read the question stem and underline the key word: disclosure document, agreement, before signing, fees, risk, termination, performance.
2Decide if the item is about the manager (disclosure document) or about the terms between the two parties (agreement).
3If the question is about timing, apply the order: disclosure document first, then agreement, then management begins.
4If it asks about contents, match the item to the core lists: background, performance and litigation for the disclosure document; service type, fees, period and termination for the agreement.
5Look for absolute words such as 'always', 'only' or 'never'. Check them against the rule before you accept the option.
6Remove options that reverse the order, mix up the two documents, or let the manager skip or override SEBI's format.
7Pick the remaining option. If two seem right, choose the one that follows the regulations most strictly.

Quickest way: Inform versus bind

When to use it: Use it for any option-sorting question when time is short.

Ask: does this describe the manager or fix the client's deal?
Manager description (background, past performance, litigation, risk factors): disclosure document.
Client deal (service type, fees charged to the client, period, termination, settlement): agreement.
Timing questions: disclosure first, agreement second.
Cross out any option that lets the manager act before the agreement is signed.

Common mistakes in Portfolio Management Agreement and Disclosure Document

Thinking the agreement is signed first and the disclosure document is handed over afterwards.
In everyday deals people sign and then receive brochures. Students carry that habit into the exam.
Fix: Remember the client must be informed before committing. Disclosure document first, then agreement.
Treating the two documents as the same thing.
Both mention fees and risks, so they look alike.
Fix: The disclosure document describes the manager and the offer. The agreement is the contract that binds both parties. Ask which one has the legal effect of a contract.
Believing the manager can write the agreement in any format.
Students assume a private contract allows free drafting.
Fix: The agreement must follow the format laid down in the Regulations, and its terms cannot contradict them.
Placing the client's chosen service type only in the disclosure document.
The disclosure document lists all services offered, so the choice seems to belong there.
Fix: The disclosure document lists what the manager offers. The agreement records which service the client actually chose.
Forgetting that past performance and litigation details belong in the disclosure document.
Students link performance to the client's own account and think it sits in the contract.
Fix: The manager's track record, litigation and associates are information about the manager. They go in the disclosure document.

Worked examples

Example 1

Which of the following correctly describes the sequence for onboarding a new PMS client? (A) Agreement signed, then disclosure document given (B) Disclosure document given, then agreement signed (C) Funds accepted, then both documents given (D) Only the agreement is needed if the client is experienced

Show the solution

The disclosure document exists so the client can make an informed decision.
Information must therefore come before commitment.
The agreement is the commitment. The manager cannot manage funds without it.
Option A reverses the order. Option C lets funds be managed before documents. Option D skips the disclosure document, which is not allowed.
Option B is the only one that follows the required order.

Answer: (B) Disclosure document given, then agreement signed.

Example 2

Which of the following is most likely to be found in the disclosure document and not as a client-specific term in the agreement? (A) The client's chosen termination notice (B) The manager's past performance and litigation details (C) The client's signature date (D) The amount handed over by the client

Show the solution

Sort each option into 'about the manager' or 'about this client's deal'.
Termination notice, signature date and amount handed over all belong to this client's contract.
Past performance and litigation describe the manager and are given to every prospective client.
These are core disclosure document content.

Answer: (B) The manager's past performance and litigation details.

Exam tips

Expect sorting questions: given an item, say whether it belongs in the disclosure document or the agreement.
Learn the order of documents cold. It is the easiest mark in this topic.
Watch for options that let the manager skip the disclosure document or ignore the SEBI format. These are usually wrong.
Learn the exact timing and exemption figures from your NISM workbook. Do not guess numbers in the exam.
Check the negative marking for your paper before you guess. For XXI-A it is 10% of the marks assigned to the question, so an educated guess after removing two options is reasonable.

Practice questions from Operational Aspects of Portfolio Managers

Portfolio Management Agreement and Disclosure Document: frequently asked questions

What is the difference between the disclosure document and the PMS agreement?

The disclosure document gives information about the portfolio manager, such as services, fees, risks, performance and litigation. The agreement is the contract between manager and client that sets the terms of the service. The first informs the client. The second binds both parties.

Does the client get the disclosure document before or after signing the agreement?

Before. The client must have the disclosure document in hand before the agreement is signed, so the decision is informed. Check your workbook for the exact period that must pass between the two.

What does a portfolio management agreement usually cover?

It covers the type of service (discretionary, non-discretionary or advisory), the investment approach, the funds or securities handed over, fees, risks, the period of the agreement, settlement of accounts and termination. It must follow SEBI's prescribed format.

Is the disclosure document filed with SEBI?

Yes. The portfolio manager prepares it in SEBI's prescribed format and files it with SEBI along with a certificate from the manager. Confirm the filing timeline in your workbook before the exam.