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

Functions and Responsibilities of Portfolio Managers under SEBI

Updated 11 October 2026 · Fact-checked

A portfolio manager is a SEBI-registered entity that manages or advises on a client's securities or funds under a written agreement. Its core duties are making investment decisions as per the agreed mandate, managing risk, keeping client assets separate, reporting regularly, and acting as a fiduciary. In exams, match each duty to the service type.

Understand Functions and Responsibilities of Portfolio Managers

A portfolio manager is a person registered with SEBI under the SEBI (Portfolio Managers) Regulations, 2020. The manager handles a client's money or securities under a contract. Unlike a mutual fund, each client has an individual portfolio held in the client's own name or account.

There are three service types. In discretionary services, the manager takes investment decisions independently, within the agreed mandate. In non-discretionary services, the manager manages the portfolio but needs the client's prior consent for each decision. In advisory services, the manager only advises. The client or the manager's execution is separate from the advice.

The main functions follow the life of the relationship. First, the manager signs a portfolio management agreement with the client and gives the disclosure document. Then the manager builds the portfolio as per the chosen investment approach and the client's risk profile. Next, the manager monitors and rebalances, controls risk, keeps accounts and sends reports to the client.

The key idea is the fiduciary duty. The client trusts the manager with money and relies on the manager's skill. So the manager must put the client's interest first, be honest and fair, avoid or disclose conflicts of interest, and never misuse client information or assets. A common example of misuse is front-running, which means trading ahead of client orders for own benefit.

Two more points are tested often. Client funds and securities must be kept separate from the manager's own money. And the manager cannot promise or guarantee returns. Past performance is shown only as per the disclosure norms.

Key formulas to remember

Discretionary service
Manager decides independently within the agreed mandate
No consent is needed for each trade. The manager is still bound by the agreement and the regulations.
Non-discretionary service
Manager manages the portfolio, but only with client's prior consent for each decision
Look for the words 'prior consent' in the question.
Advisory service
Manager advises only; the client takes the decision
Advice is given, not discretionary management.
Fiduciary standard
Client's interest first + honesty and fairness + conflicts avoided or disclosed
Any act that benefits the manager at the client's cost breaches this duty.
Client asset segregation
Client funds and securities ≠ manager's own funds and securities
Client assets are accounted for client-wise, separately from the manager's own.
Reporting
Periodic reports to each client, at least once every three months
Reports cover portfolio holdings, transactions, fees and expenses. Check the agreement for any more frequent schedule.

How to solve Functions and Responsibilities of Portfolio Managers questions

Use this method for any question on what a portfolio manager does or must do.

  1. 1Read the question and identify the service type: discretionary, non-discretionary or advisory.
  2. 2Identify the stage of the relationship: agreement and disclosure, investing, monitoring, or reporting.
  3. 3Ask what the manager's duty is at that stage and whether it is a function or a prohibition.
  4. 4Apply the fiduciary test: does the act put the client first, or does it favour the manager?
  5. 5Check the words 'prior consent', 'guarantee', 'separate' and 'at least'. These usually decide the answer.
  6. 6Remove options that promise returns, mix client and own funds, or ignore the agreement.
  7. 7Pick the option closest to the regulation, not to common practice.

Quickest way: Three-filter elimination

When to use it: Use it when you have under a minute per question and two options look right.

  1. Filter 1: Does the option follow the agreement and the SEBI rules? If not, drop it.
  2. Filter 2: Does it favour the client over the manager? If not, drop it.
  3. Filter 3: Does it match the service type in the stem? A consent requirement does not belong to discretionary service.
  4. Choose the remaining option. If two remain, pick the one that is more protective of the client.

Common mistakes in Functions and Responsibilities of Portfolio Managers

  • Treating non-discretionary like discretionary service

    Both involve the manager managing the portfolio, so they sound alike.

    Fix: Link non-discretionary with prior client consent for each decision. Link discretionary with independent decisions within the mandate.

  • Believing a manager can guarantee returns

    Marketing material often shows attractive past performance.

    Fix: Remember that no return can be assured. Past performance is not a promise of future results.

  • Thinking an advisory manager executes trades

    The word 'portfolio manager' suggests full management.

    Fix: In advisory service the manager only advises. The client takes the decision.

  • Assuming fiduciary duty ends once the agreement is signed

    Students see it as a one-time paperwork duty.

    Fix: The duty runs through the entire relationship, covering investing, charging fees, reporting and handling conflicts.

  • Mixing client assets with the manager's own

    Students think of the portfolio manager as a pooled fund like a mutual fund.

    Fix: Each client's assets are held and accounted for separately, client-wise, and kept apart from the manager's own.

  • Confusing the agreement with the disclosure document

    Both are given at onboarding.

    Fix: The agreement is the contract between manager and client. The disclosure document gives information about the manager, services, fees, risks and performance to help the client decide.

Worked examples

Example 1

Which of the following best describes the duty of a portfolio manager acting as a fiduciary?

A. Maximise the manager's own fee income
B. Act honestly and fairly, and put the client's interest first
C. Guarantee a minimum return to the client
D. Follow the client's instruction even when it breaks regulations

Show the solution
  1. Fiduciary duty means acting in trust for the client.
  2. Option A favours the manager. It fails the client-first test.
  3. Option C is a guarantee of returns, which a manager cannot give.
  4. Option D ignores the regulations. The manager must follow the law first.
  5. Option B matches the fiduciary standard.

Answer: B

Example 2

A portfolio manager buys and sells securities for a client only after taking the client's approval for each trade. Which type of service is this?

A. Discretionary portfolio management
B. Non-discretionary portfolio management
C. Investment advisory only
D. Portfolio pooling

Show the solution
  1. Spot the key phrase: the manager acts only after the client's approval for each trade.
  2. Discretionary service would not need approval for each trade.
  3. Advisory service means the manager only advises and does not trade.
  4. Pooling of client money is not the service described. Each client has an individual portfolio.
  5. The manager does manage and trade, but with prior consent. This is non-discretionary service.

Answer: B

Exam tips

  • Learn the three service types with one keyword each: independent, prior consent, advice only.
  • Watch for absolute words like 'guarantee' or 'always'. Options with them are usually wrong.
  • Questions on fiduciary duty are mostly conduct scenarios. Ask whether the manager benefited at the client's cost.
  • Remember that client assets are held separately from the manager's own and not pooled.
  • Under negative marking, skip a question only if you cannot remove any option. Otherwise eliminate and answer.

Practice questions from Role of Portfolio Managers

Functions and Responsibilities of Portfolio Managers in other exams

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

Functions and Responsibilities of Portfolio Managers: frequently asked questions

What are the main roles of a portfolio manager under SEBI rules?

The manager enters a written agreement with the client, gives the disclosure document, and invests as per the agreed mandate. It also manages risk, keeps client assets separate, and reports to clients regularly. All of this is done as a fiduciary.

What is fiduciary duty in PMS?

It is the duty to act in the client's best interest with honesty and fairness. The manager must avoid or disclose conflicts of interest and must not misuse client assets or information. Practices like front-running breach this duty.

How does a portfolio manager manage client funds?

The manager invests client money into securities as per the investment approach and the agreement. Each client has an individual portfolio, kept separate from the manager's own money. The manager then monitors, rebalances and reports to the client.

Can a portfolio manager guarantee returns?

No. Returns in securities markets are uncertain, and a manager cannot promise or assure them. Past performance can be shown only as per the disclosure norms, and it does not predict future results.