IMD/PMS/CIR/1/21727/03                                                    November 18, 2003

Sub : Improvement in corporate governanace

1. As you are aware, all portfolio managers are required to disclose the performance of their portfolios to their clients, includingdisclosure of the performance indicators calculated on the basis of weighted average method taking each individual category of investments for the immediately preceding three years in case of discretionary portfolio managers. In order to make the investors fully aware about how their funds have been deployed and also to give them an objective analysis of the performance of the portfolios being managed by the portfolio managers on discretionary basis in comparison with the rise or fall in the markets, it has been decided to disclose the performance of benchmark indices in the periodical reports to be furnished to the client in terms of Regulation 21 of SEBI (Portfolio Managers) Regulations, 1993.

The portfolio managers may select any of the indices available, e.g. BSE (Sensitive) index, S&P CNX Nifty, BSE 100, BSE 200 or S&P CNX 500, depending on the investment objective and portfolio of the client. These benchmark indices may be decided by the portfolio managers and any change at a later date shall be recorded and justified with specific reasons thereof.

As the purpose of introducing benchmarks is to indicate the performance of the portfolios vis.a.vis. markets to the investors, the portfolio managers may give performance of more than one index if they so desire. Also, they have the option to give their management perception on the performance of their schemes.

The Boards of portfolio managers may review the performance of the funds managed by them for each client separately in their meetings and should take corrective action wherever necessary. They may also compare the performance of the portfolios with benchmarks.

2. Boards of the portfolio managers should review the compliance of regulations in their periodical meetings. They should develop a system of getting quarterly reports of compliance of SEBI Regulations and Guidelines and also that due diligence has been exercised by their officials in their operations and that the interests of investors are protected. Such reports may be placed before the Boards by the compliance officers. Boards of the portfolio managers should also review redressal of investors’ grievances. Any deficiency letters or warning letters issued to the portfolio managers by SEBI should also be placed before the Boards of the portfolio managers.
3. There shall be internal audit by a practicing CA or CS so as to judge the quality of internal procedures being followed by the portfolio manager. The report of the internal audit shall be submitted to the Board of the portfolio manager.
4. The portfolio manager shall exercise due diligence in all their operational activities.
5. Compliance of the above guidelines may please be disclosed to SEBI while submitting the half yearly report. The report is to be submitted twice a year, as on 31^stof March and 30^th of September. The report should reach SEBI within thirty days of the period to which it relates.

These guidelines are being issued in accordance with the provisions of Regulation 39 of SEBI (Portfolio Managers) Regulations, 1993.