Description

SEBI permits Investment Advisers to communicate certified past performance to clients using standardized metrics including absolute returns, CAGR, rolling returns, hits/misses, performance charts, and range of returns.

Summary

BSE has communicated SEBI Circular no. HO/38/12/11(1)2025-MIRSD-POD/I/73/2025 dated October 30, 2025, which permits Investment Advisers (IAs) to communicate their past performance certified by ICAI/ICMAI members to clients in one-to-one communication. The circular establishes seven standardized performance metrics that IAs may use, along with mandatory accompanying information and disclosure requirements.

Key Points

  • IAs can communicate certified past performance to clients (including prospective clients) in one-to-one communication
  • Performance data must be certified by a member of ICAI (Institute of Chartered Accountants of India) or ICMAI (Institute of Cost Accountants of India)
  • Seven performance metrics are available: Absolute Returns (INR and %), CAGR, Rolling Returns, Hits/Misses, Performance Charts, and Range of Returns
  • IAs may select one or more metrics; disclosure of all metrics is not mandatory
  • A single, consistent performance calculation methodology must be adopted for each category of advice
  • All communications must include six mandatory information items

Regulatory Changes

SEBI has introduced a standardized framework for Investment Advisers to communicate past performance, which was previously restricted. The key changes include:

  1. Permitted Performance Metrics: Seven standardized metrics are now defined for communicating past performance
  2. Certification Requirement: Performance data must be certified by ICAI/ICMAI members
  3. Methodology Consistency: IAs must adopt a single, consistent performance calculation methodology for each advice category
  4. Transparency Enhancement: Mandatory accompanying information ensures clients understand the performance data context

Compliance Requirements

Investment Advisers must ensure the following when communicating past performance:

Mandatory Accompanying Information:

  1. Name/nature of service/advice/recommendation to which performance relates
  2. Applicable time period for the performance
  3. Information/details explaining how performance has been calculated
  4. Assumptions made during performance calculation
  5. Disclaimers specified in the SEBI circular
  6. Certification provided by ICAI/ICMAI member for past performance data

Performance Metrics (Choose one or more):

  1. Absolute Returns (INR) - Returns in INR terms for assumed investment amount with time period
  2. Absolute Returns (%) - Percentage returns with time period
  3. CAGR - Compounded average annual growth rate with time period
  4. Rolling Returns - Returns over overlapping periods with time period
  5. Hits/Misses - Success ratio of calls with time period and number of recommendations
  6. Performance Charts - Charts showing NAV or price with dates
  7. Range of Returns - Maximum/minimum returns or categorized performance ranges with time period and number of recommendations

General Requirements:

  • Adopt single, consistent performance calculation methodology for each advice category
  • Ensure certification by ICAI/ICMAI members
  • Limit communication to one-to-one basis with clients

Important Dates

  • October 30, 2025: SEBI Circular issued
  • November 21, 2025: BSE communication date
  • Effective Date: Not specified; appears to be effective immediately

Impact Assessment

Positive Impacts:

  • Enhances transparency in Investment Advisory services
  • Provides standardized framework for performance communication
  • Helps clients make informed decisions based on certified past performance
  • Reduces ambiguity in performance reporting

Operational Impact:

  • Investment Advisers need to establish processes for performance certification by ICAI/ICMAI members
  • IAs must document and maintain consistent performance calculation methodologies
  • Additional compliance burden for preparing mandatory accompanying information
  • Cost implications for obtaining professional certification

Market Impact:

  • Limited direct market impact as applicable only to Investment Advisers
  • May improve investor confidence in advisory services
  • Could lead to increased competition among IAs based on transparent performance metrics
  • No impact on stock trading or listed securities directly

Impact Justification

Establishes standardized performance reporting framework for Investment Advisers, enhancing transparency in client communications but applicable only to IAs, not broader market participants