Description

SEBI permits Investment Advisers to communicate certified past performance to clients using specified performance metrics and mandatory disclosure requirements.

Summary

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

Key Points

  • Investment Advisers 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 from the list; disclosure of all metrics is not mandatory
  • Investment Advisers must adopt a single, consistent performance calculation methodology for each category of advice or recommendation
  • All performance communications must include six specific pieces of mandatory information

Regulatory Changes

SEBI has introduced a standardized framework for Investment Advisers to communicate past performance data. Previously, such communications were restricted. The new framework permits certified past performance communication through specified performance metrics:

  1. Absolute Returns (INR terms) - Returns for assumed investment amount over specified time period
  2. Absolute Returns (%) - Percentage returns over specified time period
  3. CAGR - Compounded average annual growth rate
  4. Rolling Returns - Returns over overlapping time periods within total timeframe
  5. Hits/Misses - Success ratios represented as:
    • Ratio of successful to unsuccessful calls
    • Ratio of successful to total calls
    • Number of successful calls as percentage of total calls
  6. Performance Charts - Charts showing NAV or price of recommended securities
  7. Range of Returns - Maximum/minimum returns or categorization across performance ranges

Compliance Requirements

Investment Advisers must ensure all performance communications include:

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

Additional Requirements:

  • Each performance metric must include minimum mandatory information (time period in days/months/years)
  • For Hits/Misses and Range of Returns metrics, number of recommendations must also be disclosed
  • For Performance Charts, specific dates must be included
  • Investment Advisers must adopt a single, consistent performance calculation methodology at all times for each category of advice or recommendation
  • Enhanced transparency and uniformity must be maintained

Important Dates

  • October 30, 2025 - Date of original SEBI Circular no. HO/38/12/11(1)2025-MIRSD-POD/I/73/2025
  • November 21, 2025 - BSE notification date
  • Effective Immediately - Investment Advisers may begin communicating certified past performance following the prescribed framework

Impact Assessment

Positive Impacts:

  • Enables Investment Advisers to showcase track record through certified performance data
  • Provides standardized framework ensuring consistency and comparability
  • Enhances transparency in IA-client relationships
  • Allows prospective clients to make informed decisions based on certified past performance
  • Flexibility to choose relevant metrics based on advisory service type

Operational Impact:

  • Investment Advisers need to engage ICAI/ICMAI members for certification of past performance
  • Requires development of consistent performance calculation methodologies
  • Need to maintain documentation showing assumptions and calculation methods
  • Additional compliance burden to ensure all six mandatory disclosures accompany performance communications
  • One-to-one communication limitation means mass marketing of performance remains restricted

Market Impact:

  • Limited direct market impact as this affects only Investment Advisers and their client communications
  • May increase competition among IAs based on transparent, certified performance metrics
  • Could enhance investor confidence in advisory services sector

Impact Justification

Affects Investment Advisers only, establishes standardized framework for performance communication with clients, requires specific disclosures and certification by ICAI/ICMAI members