Description

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

Summary

SEBI has issued guidelines via Circular no. HO/38/12/11(1)2025-MIRSD-POD/I/73/2025 dated October 30, 2025, permitting Investment Advisers (IAs) to communicate their past performance certified by ICAI/ICMAI members to clients in one-to-one communications. The circular defines seven standardized performance metrics that IAs may use, along with mandatory accompanying information requirements and transparency standards.

Key Points

  • Investment Advisers can communicate certified past performance to clients and 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 provided: Absolute Returns (INR and %), CAGR, Rolling Returns, Hits/Misses, Performance Charts, and Range of Returns
  • Selection of one or more metrics is permitted; disclosure of all metrics is not mandatory
  • IAs must adopt a single, consistent performance calculation methodology for each category of advice or recommendation
  • All performance communications must include six specific types of accompanying information

Performance Metrics Available

1. Absolute Returns (in INR terms)

  • Returns generated in INR for a particular time period for an assumed investment amount
  • Must specify time period (days/months/years)

2. Absolute Returns (in %)

  • Returns generated in percentage terms for a particular time period
  • Must specify time period (days/months/years)

3. CAGR (Compounded Annual Growth Rate)

  • Compounded average annual growth rate over a specified period
  • Must specify time period (days/months/years)

4. Rolling Returns

  • Returns over overlapping time periods within a total timeframe
  • Return measured starting at different points for a fixed duration
  • Must specify time period (days/months/years)

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 percentage of total calls
  • Must specify time period and number of recommendations

6. Performance Charts with NAV or Price

  • Performance represented in chart form with NAV or price of recommended/advised securities
  • Must specify date

7. Range of Returns Generated

  • Can be represented as:
    • Maximum and minimum returns across all recommendations/advice in a particular time period
    • Categorization of number of recommendations/advice across different performance ranges
  • Must specify time period and number of recommendations

Compliance Requirements

Mandatory Accompanying Information

All performance communications must include:

  1. Name/nature of service/advice/recommendation of IA to whom the performance relates
  2. Applicable time period for the performance
  3. Information/details explaining how the 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

Methodology Requirements

  • Investment Advisers must adopt a single, consistent performance calculation methodology at all times
  • Separate methodology must be maintained for each category of advice or recommendation
  • Ensures uniformity and transparency in performance reporting

Important Dates

  • SEBI Circular Date: October 30, 2025
  • BSE Notification Date: November 21, 2025

Impact Assessment

Industry Impact

  • Enhances transparency in the Investment Advisory industry by standardizing performance communication
  • Provides clients with comparable performance data across different Investment Advisers
  • Creates accountability through mandatory certification by ICAI/ICMAI members

Operational Impact

  • Investment Advisers need to establish processes for performance certification by ICAI/ICMAI members
  • Requires implementation of consistent performance calculation methodologies
  • IAs must maintain documentation of assumptions, calculations, and certifications
  • Flexibility in choosing metrics allows IAs to select most relevant measures for their business model

Compliance Impact

  • IAs must ensure all communications include six mandatory information elements
  • Need to maintain consistency in methodology across all communications
  • Performance data must be verifiable and certified, reducing potential for misleading claims

Impact Justification

Establishes framework for Investment Advisers to communicate certified past performance to clients with standardized metrics and mandatory disclosures, enhancing transparency in the advisory industry