The PMS client agreement and MITC
The agreement is mandatory; the MITC summarises it and must be acknowledged by the client.
No portfolio manager may start managing a client's money without a written agreement that sets out their mutual rights, liabilities and obligations (Regulation 22(1)). Since October 1, 2024 the client also receives a short Most Important Terms and Conditions (MITC) document that pulls the critical points onto a few pages.
The agreement is long and legal; the MITC is what a client actually reads. A distributor needs to know what each must contain, because clients will ask you about clauses before they sign.
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What the agreement must contain
Regulation 22(2) and Schedule IV list the contents. The ones that come up most:
- check_circleInvestment objectives, the services provided and the investment approach, with any restrictions the client places on particular companies or sectors (the 'negative list').
- check_circleType of instruments, proportion of exposure and tenure of investments.
- check_circlePeriod of the contract, early termination and terms for early withdrawal of funds or securities.
- check_circleFees payable for each activity, including outsourced ones, and billing periodicity.
- check_circleCustody of securities, accounting, audit and reports to the client at least once every three months.
- check_circleLiability of the PM for errors of judgment, negligence or wilful misfeasance, and for acts of other intermediaries.
- check_circleFor a discretionary PM, a condition that the client's liability shall not exceed their investment (Reg 22(2)(m); Master Circular 6.1.6).
- check_circleDeath or disability of the client, assignment, governing law, and grievance, dispute resolution and arbitration provisions.
- check_circleThe PM cannot change any term without the client's prior consent (Schedule IV, item 9).
The 'absolute and final' clause
SEBI found agreements saying the PM's decisions 'can never be called in question'. The Master Circular (4.2) requires the clause to read that decisions taken in good faith cannot be questioned except on the ground of mala fide, fraud, conflict of interest or gross negligence. A client always keeps the right to challenge those.
The fee annexure
The agreement must carry a separate annexure listing every fee and charge (Master Circular 4.3):
- Sample portfolio
- Charges illustrated on a ₹50 lakh portfolio over one year, for three cases: value up 20%, down 20%, and unchanged.
- Multi-year illustrations
- For clients onboarded on or after October 1, 2024 who pay a performance fee, one-year and multi-year illustrations that apply the high water mark, in APMI's standard format.
- Client's own note
- The new client signs the annexure separately and adds that they have understood the fee structure: handwritten for paper onboarding, typed or written with a stylus for digital.
- Nothing outside it
- No fee or charge may be levied that is not in the annexure. Text and figures must be at least 11-point font.
Free account, this exam preselected.
The MITC document
Master Circular paragraph 4.7A requires the PM to give each client an MITC document, duly acknowledged by the client, in the standard format APMI prescribes in consultation with SEBI. SEBI's May 2, 2024 circular applied it to new clients onboarded on or after October 1, 2024 and required existing clients to be sent the MITC by January 1, 2025. The MITC sits on top of the agreement; it does not replace it.
Approved, not in force: the 2026 Regulations
SEBI's Board approved new Portfolio Managers Regulations, 2026 on September 24, 2026. They introduce a standardised Investment Management Agreement with the authority to operate the client's demat and trading account built into it; a power of attorney would still be needed for the bank account. Until the new Regulations are notified, Regulation 22 and Schedule IV apply.
Large value accredited investors
An accredited investor who signs for at least ₹10 crore is a large value accredited investor (Reg 2(1)(la)). For them, the Schedule IV contents do not apply and terms such as exit load are bilaterally negotiated.
How XXI-A tests this
Expect 'which of these must the agreement include' questions, where fees, liability cap and reporting are right and anything resembling a guaranteed return is wrong. The liability rule is a favourite: a discretionary client's liability cannot exceed their investment. MITC questions ask one thing: it must be acknowledged by the client. The trap is choosing 'approved by SEBI' or 'signed by the distributor'.
FAQs
What is MITC in PMS?expand_more
Most Important Terms and Conditions: a short document in APMI's standard format summarising the key terms of the PMS relationship. The client must acknowledge it. It is given in addition to the full agreement.
Can a PMS client lose more than they invested?expand_more
For a discretionary account, the agreement must state that the client's liability will not exceed their investment with the portfolio manager.
Can a portfolio manager change the agreement terms later?expand_more
Not on its own. Schedule IV says the PM shall not change any term of the agreement without the client's prior consent.
Is the fee annexure part of the PMS agreement?expand_more
Yes. It is a separate annexure to the agreement, signed separately by the client, and no charge outside it may be levied.