NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

SEBI (Portfolio Managers) Regulations, 2020 Overview for NISM XXI-A

Updated 11 October 2026 · Fact-checked

The SEBI (Portfolio Managers) Regulations, 2020 govern who can run portfolio management services in India. A portfolio manager is a registered body corporate that manages a client's securities or funds under a contract. Services can be discretionary, non-discretionary or advisory. Key tests: registration, fit and proper status, and minimum net worth of ₹5 crore.

Understand SEBI (Portfolio Managers) Regulations, 2020 Overview

A portfolio manager is a person who, under a contract with a client, advises, directs or undertakes the management of the client's portfolio of securities or funds. The SEBI (Portfolio Managers) Regulations, 2020 replaced the 1993 regulations and form the main rulebook for this business. Your PMS distributor exam tests this rulebook because you sell these services.

There are three service types. In discretionary PMS, the manager decides what to buy and sell for the client on its own, under the contract. In non-discretionary PMS, the manager manages the funds in accordance with the client's directions, and the individual decisions are made as the client directs. The manager has no discretion of its own. In advisory services, the manager advises the client on portfolio decisions, in the form of a contract, and the decisions rest with the client.

No one can act as a portfolio manager without a SEBI registration. The applicant must be a body corporate, must be a fit and proper person, and must meet the eligibility and capital requirements. SEBI checks the applicant's track record, integrity, infrastructure and qualified staff, among other things.

The key money rules are capital adequacy and the client minimum. A portfolio manager must maintain a net worth of at least ₹5 crore. This is a continuing requirement, not just a one-time entry test. At onboarding, each client must bring in at least ₹50 lakh with the portfolio manager, in funds, securities or both. Accredited investors may be exempted from this minimum. Confirm both figures against the latest NISM workbook, as SEBI can amend limits.

Think of it as a chain: who can do it (registered, fit and proper body corporate), what they can offer (three service types), and how safe they must be (net worth and client minimum). Most exam questions test one link of this chain.

Key formulas to remember

Minimum net worth: Net worth of a portfolio manager ≥ ₹5 crore; A continuing capital adequacy requirement. Pick 'at least ₹5 crore', not a lower or an exact-amount option.
Minimum investment per client: Client's investment with the portfolio manager at onboarding ≥ ₹50 lakh (accredited investors may be exempted); Can be in funds, securities or a combination. It applies per client, not to the whole firm. Accredited investors can be onboarded below this minimum.
Discretionary service: Discretionary = manager decides on investments, under the contract; The manager exercises discretion on the client's behalf.
Non-discretionary service: Non-discretionary = manager manages funds in accordance with the client's directions; The individual decisions are made as the client directs. The manager has no discretion of its own.
Advisory service: Advisory = manager advises the client on portfolio decisions, under a contract; decisions rest with the client; The manager gives advice on the portfolio. The decisions rest with the client.
Who can register: Applicant = body corporate + fit and proper + SEBI registration; An individual or an unregistered entity cannot offer PMS.

How to solve SEBI (Portfolio Managers) Regulations, 2020 Overview questions

Use this method for any question on the 2020 Regulations overview. It keeps you from mixing up service types and limits.

1Read the stem and decide which link it tests: definition, service type, registration or eligibility, or capital and limits.
2If it is about service type, find who takes the investment decision: the manager (discretionary), the client (non-discretionary) or the client with only advice given (advisory).
3If it is about registration, recall that only a SEBI-registered body corporate that is fit and proper can act as portfolio manager.
4If it is about money, recall net worth ≥ ₹5 crore (firm level) and client investment ≥ ₹50 lakh (client level). Do not mix the two.
5Watch qualifiers such as 'at least', 'not', 'except' and 'discretionary only'. Underline them mentally.
6Eliminate options with the wrong figure, an individual as applicant, or a wrong service description. Pick the one that fits exactly.

Quickest way: Three-question check

When to use it: Use it when time is short and the question is a one-line fact or definition.

Who decides? Manager means discretionary. Client means non-discretionary. Advice only means advisory.
Who is the applicant? It must be a registered, fit and proper body corporate.
Which amount? Firm net worth is ₹5 crore at least. Client minimum is ₹50 lakh.

Common mistakes in SEBI (Portfolio Managers) Regulations, 2020 Overview

Confusing the ₹5 crore net worth with the ₹50 lakh client minimum.
Both are rupee limits in the same regulations, and options often swap them.
Fix: Link ₹5 crore to the firm's capital adequacy and ₹50 lakh to each client's investment at onboarding.
Saying non-discretionary PMS means the manager takes decisions without asking the client.
The word 'discretionary' is misread or the prefix 'non' is ignored.
Fix: Remember: discretion belongs to the manager only in discretionary PMS. In non-discretionary PMS, the manager manages the funds in accordance with the client's directions.
Treating advisory service as full portfolio management.
Students assume every service involves managing funds.
Fix: In advisory, the manager advises the client on portfolio decisions under a contract. The decisions rest with the client.
Believing an individual can register as a portfolio manager.
Students mix this with other intermediary categories or think of an individual professional.
Fix: The applicant must be a body corporate. Individuals can work for it but cannot be the registered portfolio manager.
Treating net worth as a one-time entry requirement.
Registration sounds like a one-time event.
Fix: Net worth is a continuing capital adequacy requirement. The manager must maintain it throughout.
Assuming any listed limit is permanent.
Students memorise numbers from old notes.
Fix: Use the 2020 Regulations figures and the latest NISM workbook, not figures from old notes.

Worked examples

Example 1

What is the minimum net worth a portfolio manager must maintain under the SEBI (Portfolio Managers) Regulations, 2020? (a) ₹50 lakh (b) ₹2 crore (c) ₹5 crore (d) ₹10 crore

Show the solution

The question asks about the firm's capital adequacy, so it is the net worth requirement and not the client minimum.
Under the 2020 Regulations, the net worth must be at least ₹5 crore.
₹50 lakh is the client minimum investment, so (a) is the trap. ₹2 crore is below the required minimum, so (b) is out.
₹10 crore is not the stated minimum, so (d) is out.

Answer: (c) ₹5 crore

Example 2

A portfolio manager invests a client's money only as the client directs for each purchase and sale. Which service is this? (a) Discretionary portfolio management (b) Non-discretionary portfolio management (c) Advisory service only (d) Mutual fund distribution

Show the solution

Ask who takes the investment decision. Here the client directs every transaction.
So the manager does not exercise discretion. That rules out (a).
In non-discretionary PMS the manager manages the client's funds as directed, which goes beyond giving advice. That rules out (c).
This is not a distribution of mutual fund units, so (d) is wrong.
Managing the funds in accordance with the client's directions is non-discretionary PMS.

Answer: (b) Non-discretionary portfolio management

Exam tips

Memorise the two rupee figures separately: ₹5 crore net worth for the manager, ₹50 lakh minimum per client.
In service-type questions, look for the one phrase that shows who decides. That phrase gives the answer.
Check the qualifier: 'at least' means a minimum, 'registered' means SEBI registration, 'body corporate' rules out individuals.
Answer from the 2020 Regulations and the current NISM workbook. This paper has negative marking of 10% of the marks assigned to a question (0.1 mark per wrong answer), so do not guess blindly between two options you cannot separate.
If two options differ only by a number, trace which entity the number applies to: firm or client.

Practice questions from Regulatory, Governance and Ethical Aspects of Portfolio Managers

SEBI (Portfolio Managers) Regulations, 2020 Overview in other exams

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

SEBI (Portfolio Managers) Regulations, 2020 Overview: frequently asked questions

What is the net worth requirement for a portfolio manager under SEBI rules?

A portfolio manager must maintain a net worth of at least ₹5 crore under the SEBI (Portfolio Managers) Regulations, 2020. This is a continuing capital adequacy requirement. Check the latest NISM workbook in case of amendments.

What is the difference between discretionary and non-discretionary PMS?

In discretionary PMS, the portfolio manager decides on investments for the client under the contract. In non-discretionary PMS, the manager manages the funds in accordance with the client's directions, and the individual decisions are made as the client directs. The manager has no discretion of its own.

Who can apply for registration as a portfolio manager?

The applicant must be a body corporate and a fit and proper person. It must hold SEBI registration before acting as portfolio manager. It must also meet the net worth and other eligibility conditions.

What is the minimum amount a client must invest in PMS?

Under the 2020 Regulations, a client must bring in at least ₹50 lakh with the portfolio manager at onboarding. This can be in funds, securities or both. Accredited investors may be exempted from this minimum. It is a per-client limit and is different from the firm's net worth.