Every portfolio manager must keep and maintain the following books of accounts, records and documents:
i) A copy of the balance sheet at the end of each accounting period;
ii) A copy of the profit and loss account for each accounting period;
iii) A copy of the auditors’ report on the accounts for each accounting period;
iv) A statement of the financial position; and
v) Records in support of every investment transaction or recommendation which indicate the data, facts and opinion leading to that investment decision.
After the end of each accounting period, copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required must be submitted to the SEBI. Half yearly un-audited financial results, when required with a view to monitoring the capital adequacy have to be submitted to the SEBI. The books of accounts and other records and documents must be preserved for a minimum period of five years.
Audit of Accounts: The portfolio manager is required to maintain separate client wise accounts. The funds received from the clients, investments or disinvestment and all the credits to the account of the client like interest, dividend, bonus, or any other beneficial interest received on the investment and debits, for expenses, if any have to be properly accounted for and details properly reflected in the client’s account. The tax deducted at source should be recorded in the portfolio account. The books of account have to be audited yearly by a qualified auditor, to ensure that proper accounting methods and procedures have been followed and that the portfolio manager has performed his duties in accordance with the law. A certificate to this effect, if so specified has to be submitted to the SEBI within six months of the close of accounting period.
Report to be furnished to the Client: The portfolio manager should furnish periodically a report to the client, agreed in the contract, but not exceeding a period of six months containing the following details:
1. The composition and the value of the portfolio, description of security, number of securities, value of each security held in the portfolio, cash balance and aggregate value of the portfolio as on the date of report;
2. Transactions undertaken during the period of report including date of transaction and details of purchase and sales;
3. Beneficial interest received during that period in respect of interest, dividend, bonus shares, rights shares and debentures.
4. Expenses incurred in managing the portfolio of the client.
5. Details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the portfolio manager for investment or disinvestment.
He should also furnish to the client documents and information relating only to the management of a portfolio. On termination of the contract, the portfolio manager should give a detailed statement of accounts to the clients and settle the account with the client as agreed in the contract. In the event of any dispute, the client has the right to obtain details of his portfolio from the portfolio manager.
Every portfolio manager should, within two months from the date of the auditors’ report take steps to rectify the deficiencies made out in the auditors report.
Disclosures to the SEBI: A portfolio manager must disclose as and when required the following information:
i) Particulars regarding the management of a portfolio;
ii) Any change in the information or particulars previously furnished, which have a bearing on the certificates granted to him;
iii) The names of the clients whose portfolio he has managed;
iv) Particulars relating to the capital adequacy requirements.