Informal Guidance – ASK Wealth Advisors

SEBI/HO/IMD/DF1/OW/P/2021/31147/1 October 29, 2021

GENERAL MANAGER

INVESTMENT MANAGEMENT DEPARTMENT

DIVISION OF FUNDS-1

SEBI/HO/IMD/DF1/OW/P/2021/31147

October 29, 202

Mr. Somnath Mukherjee

ASK Wealth Advisors Private Limited

Birla Aurora, Level 16, Office Floor 9, Dr. Annie Besant Road, Worli, Mumbai-400030.

Dear Sir,

Sub: Request for an interpretative letter under the Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in connection with the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 by ASK Wealth Advisors Private Limited.

(1) This has reference to your letter dated May 21, 2021 seeking an interpretative letter under the SEBI (Informal Guidance) Scheme, 2003 and further correspondence.

(2) In your letter under reference you have represented ASK Wealth Advisors Private Limited as a SEBI registered Portfolio Manager with registration number INP000007003.

(3) In that context, you have sought an interpretive letter under the SEBI (Informal Guidance) Scheme, 2003 from SEBI on the following issues:

(i) Clarification on the following understanding-“Subject to the restrictions imposed under Regulation 24 (4) of the SEBI (Portfolio Managers) Regulations 2020 and Master Direction – Liberalized Remittance Scheme (LRS) (LRS Circular), a Portfolio Manager may invest funds of resident individual clients, who are rendered non discretionary and advisory services by the portfolio manager, in securities of companies outside India and units of offshore mutual funds or offshore venture capital funds. Accordingly, portfolio managers may invest funds of their individual clients who avail non discretionary portfolio management services in offshore shares and securities (as per the terms of LRS Circular) up to 25% of their assets under management since such offshore shares and securities are not listed or traded on Indian Stock Exchanges. This is on the basis that the shares of offshore companies or units of offshore mutual funds or venture capital funds which are not listed in India stock exchanges cannot be classified as ‘securities listed or traded on recognised stock exchange’ and hence would be classified as ‘unlisted shares’.

(ii) Request that a clarification to Regulation 24 (4) of the SEBI (Portfolio Managers) Regulations 2020 be issued by SEBI stating that it is permissible for both clients of portfolio managers to facilitate investments of their discretionary as well as non discretionary services in shares of a company undergoing an IPO process upon the issue becoming open for subscription by the public.

SEBI Response

Our Comments

(4) The submissions made in your letter have been considered, and without necessarily agreeing with your analysis, our view on the Issues raised in your letter are as under:

(i) In regard to query (i) above, the following is informed:

(a) In terms of regulation 2 (o) of the SEBI (Portfolio Manager) Regulations, 2020 a “portfolio manager” means a body corporate, which pursuant to a contract with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or goods or funds of the client, as the case may be.

(b) The term “securities” is defined under Section 2 (h)(i) of the Securities Contract Regulations Act, 1956 (the SCRA Act) which inter alia includes — shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. In terms of Section 1(2) of the SCRA, the Act is applicable to the territory of India and therefore the term ‘securities’ as defined under the SCRA may be construed to securities issued, listed or proposed to be listed in India.

(c) Further, under Section 24 of the Companies Act, 2013, SEBI is empowered to regulate matters related to issue and transfer of securities and non payment of dividends by listed companies or of those companies which intend to get their securities listed on any recognised stock exchange in India. Therefore SEBI may regulate the issue and transfer of only securities of those companies incorporated in India, which are listed or intend to get listed in the recognised stock exchanges.

(d) Thus, to the extant legal framework governing portfolio managers does not envisage investment in / advise on offshore shares and securities which are neither listed or intend to get listed in the recognised stock exchanges.

(5) In regards to query at (3) (ii), response is not provided in terms of clause 8 (viii) of SEBI (informal Guidance) Scheme 2003 which states the following :

“SEBI may not respond to following type of requests …

vii those cases where policy concerns require that the Department does not respond.”

(6) The above information is based on the information furnished in your letter under reference. Different facts or conditions may lead to different interpretation. Further this letter does not represent the opinion of the Board.

(7) You may note that the above views are expressed only with respect to the clarification sought in your letters under reference with respect to SEBI (Portfolio Managers) Regulations 2020 and do not affect the applicability of any other laws or requirements of any other SEBI Regulations, guidelines or circulars administered by SEBI or of the laws administered by any other authority.

Manaswini Mahapatra