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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

Under SEBI's Portfolio Managers Regulations, which performance-related practice is applicable to a portfolio manager's reporting of returns to clients?

Portfolio managers must report performance using the time-weighted rate of return method as prescribed by SEBI. This method neutralises the effect of the timing of client inflows and outflows, allowing fair comparison of managers' skill.

  1. AReturns may be computed using any method the manager prefers without disclosure
  2. BPerformance must be reported using the time-weighted rate of return method, as prescribed by SEBICorrect
  3. COnly the best performing client's returns may be published
  4. DReturns need not be reported net of fees and expenses

Explanation

SEBI requires portfolio managers to compute and report performance using the time-weighted rate of return (TWRR) method, which removes the effect of timing of client cash flows. Free choice of method, cherry-picking the best client, or ignoring fees would all make performance reporting misleading and are not allowed.

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