Description

SEBI permits Investment Advisers to communicate certified past performance to clients using specified performance metrics with mandatory disclosures and uniform calculation methodology.

Summary

SEBI vide Circular no. HO/38/12/11(1)2025-MIRSD-POD/I/73/2025 dated October 30, 2025, permits Investment Advisers (IAs) to communicate their past performance certified by a member of ICAI/ICMAI to their clients (including prospective clients) in one-to-one communication. The circular specifies seven performance metrics that IAs may use, along with mandatory accompanying information and disclosure requirements.

Key Points

  • Investment Advisers can communicate certified past performance to 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 for IAs to choose from (not all mandatory)
  • IAs must adopt a single, consistent performance calculation methodology for each category of advice
  • All performance communications must include six mandatory pieces of accompanying information

Regulatory Changes

SEBI has introduced a standardized framework for Investment Advisers to communicate past performance:

Seven Available Performance Metrics:

  1. Absolute Returns (in INR terms) - Returns generated in INR terms for a particular time period, for an assumed sum of investment amount

  2. Absolute Returns (in %) - Returns generated in percentage terms for a particular time period

  3. CAGR - Compounded average annual growth rate over a specified period

  4. Rolling Returns - Returns over overlapping time periods within a total timeframe, where the return for each period is measured starting at different points and continuing for a fixed duration

  5. Hits/Misses - Can be represented as:

    • Ratio of successful calls to unsuccessful calls
    • Ratio of successful calls to total calls
    • Number of successful calls as a percentage of total calls

  6. Performance Charts with NAV or Price - Performance represented in chart form with NAV or price of recommended/advised securities

  7. Range of Returns Generated - Can be represented as:

    • Maximum and minimum returns generated across all recommendations/advice in a particular time period
    • Categorization of number of recommendations/advice across different ranges of performance

Note: IAs may select one or more performance metrics from the list; disclosure of all metrics is not mandatory.

Compliance Requirements

Mandatory Information to Accompany Performance Communications:

  1. The name/nature of service/advice/recommendation of IA to whom the performance relates
  2. The applicable time period for the performance
  3. Information/details to help the user understand how the performance has been calculated
  4. Assumptions made during performance calculation
  5. Disclaimers specified in the SEBI circular
  6. Certification provided by the member of ICAI/ICMAI for past performance data

Methodology Requirements:

  • Investment Advisers must adopt a single, consistent performance calculation methodology at all times for each category of advice or recommendation
  • This ensures transparency and uniformity across all communications

Certification Requirements:

  • Past performance data must be certified by a member of ICAI or ICMAI
  • Certification must accompany all performance communications

Important Dates

  • October 30, 2025 - Date of original SEBI Circular (HO/38/12/11(1)2025-MIRSD-POD/I/73/2025)
  • November 21, 2025 - Date of BSE circular communicating the requirements

Impact Assessment

Positive Impacts:

  • Enhances transparency in Investment Adviser industry by standardizing performance communication
  • Provides clients with certified, verifiable past performance data
  • Creates uniform methodology for performance calculation, enabling better comparison
  • Increases accountability of Investment Advisers through mandatory certification requirements

Operational Impact:

  • Investment Advisers need to engage ICAI/ICMAI members for certification of past performance data
  • IAs must establish and document consistent performance calculation methodologies for each category of advice
  • Additional compliance burden for IAs in terms of documentation and disclosure requirements
  • IAs have flexibility to choose relevant performance metrics based on their service offerings

Market Impact:

  • Limited direct market impact as this applies only to IA-client communications
  • May improve investor confidence in Investment Advisory services
  • Could lead to increased adoption of Investment Advisory services due to enhanced transparency
  • Standardization may facilitate better decision-making by clients when selecting Investment Advisers

Impact Justification

Establishes standardized framework for Investment Advisers to communicate past performance, affecting IA practices and client communications but limited to specific category of market participants