The Securities and Exchange Board of India (SEBI) has introduced new guidelines to standardise the creation and management of model portfolios by research analysts. These regulations aim to improve transparency, ensure accurate performance reporting, and protect investors from misleading claims.
Under the new framework, model portfolios must follow clearly defined selection methodologies, disclose risk factors, and be benchmarked against appropriate indices. SEBI is also establishing a Performance Validation Agency (PVA) to verify performance claims made by intermediaries.
This blog explores the key aspects of SEBI’s guidelines, their impact on research analysts, and what they mean for investors.
Understanding SEBI’s Definition of a Model Portfolio
SEBI has clearly defined what qualifies as a model portfolio to bring consistency and transparency to investment recommendations.
What is a Model Portfolio?
- A model portfolio is a basket of securities recommended by a research analyst, accompanied by a research report.
- To qualify as a model portfolio, the report must include recommended weightages for each security.
- If weightages are not provided, the collection of securities does not meet SEBI’s definition of a model portfolio.
Why is This Definition Important?
- Ensures that research analysts provide structured and actionable investment insights rather than generic stock lists.
- Helps investors understand how much exposure they should have to each stock in the portfolio.
- Prevents misleading claims by setting clear guidelines for portfolio construction.
By standardising what constitutes a model portfolio, SEBI aims to enhance transparency and accountability in investment research.
Key SEBI Guidelines for Model Portfolios
SEBI has introduced a structured framework for research analysts managing model portfolios. These guidelines ensure clarity in portfolio construction, performance tracking, and risk disclosures.
1. Model Portfolio Reports
- Every model portfolio must be backed by a detailed research report covering all securities.
- The report must include a factsheet with key details such as methodology, rationale, launch date, update frequency, and portfolio type.
- The research opinion on individual securities in the model portfolio must align with the analyst’s broader views on those stocks.
2. Stock Selection Methodology
- Research analysts must clearly define the criteria for selecting stocks in a model portfolio.
- The methodology should explain whether selections are based on fundamental analysis, technical analysis, or a combination of both.
- The portfolio should be labeled according to its investment theme, such as sector-based, growth-focused, or value-oriented.
3. Labelling Standards
- Model portfolios must be “true to label”, meaning their names should accurately reflect the investment approach.
- Example: A portfolio labeled as a “Mid-Cap Growth Portfolio” should primarily include mid-cap stocks with growth potential.
4. Investment Horizon Disclosure
- Every model portfolio must specify a recommended holding period, such as short-term (1 year), medium-term (3 years), or long-term (5+ years).
- This helps investors align their financial goals with the expected timeframe of the portfolio.
5. Review and Update Frequency
- SEBI mandates that research analysts predefine rebalancing intervals (e.g., quarterly or annually).
- Updates must be communicated to investors along with the rationale behind changes.
6. Risk Disclosures
- Analysts must provide clear risk warnings, detailing factors such as market volatility, sectoral risks, and macroeconomic influences.
- This prevents investors from underestimating potential losses associated with the model portfolio.
7. Benchmarking Against Indices
- Each model portfolio must be benchmarked against a relevant SEBI-approved index, such as the Nifty 50, BSE Midcap, or sector-specific indices.
- This allows investors to compare the portfolio’s performance with broader market trends.
SEBI’s structured guidelines aim to ensure that model portfolios are transparent, well-defined, and aligned with investor expectations.
Performance Validation: The Role of SEBI’s Performance Validation Agency (PVA)
To enhance transparency and credibility in investment recommendations, SEBI is setting up a Performance Validation Agency (PVA) to verify performance claims made by research analysts and other market intermediaries.
What is the Performance Validation Agency?
The PVA will serve as an independent body responsible for validating the accuracy of investment performance reports. It will review model portfolios, mutual fund schemes, and portfolio management services to ensure that returns, risk levels, and volatility metrics are reported correctly.
How Will the PVA Improve Transparency?
- It will independently verify performance claims, reducing the risk of misleading data.
- It will introduce standardised validation methods, ensuring consistency across research reports.
- By working with credit rating agencies and other financial institutions, the PVA will strengthen market integrity.
Why is Performance Validation Important?
- Investors will have greater confidence in the accuracy of reported returns.
- Research analysts and investment advisors will be held accountable for the claims they make.
- The validation process will discourage exaggerated or misleading performance advertisements.
With the introduction of the PVA, SEBI aims to bring a higher level of accountability and trust to investment research and advisory services.
Compliance Deadline for Research Analysts
SEBI has set a compliance deadline of June 30, 2025, for research analysts to fully implement these guidelines. This timeframe allows analysts to align their model portfolios with the new regulatory requirements and ensure performance validation processes are in place.
Steps Research Analysts Need to Take for Compliance
- Update model portfolio reports to include factsheets, methodology, and risk disclosures.
- Ensure portfolio recommendations specify weightages and follow a defined stock selection process.
- Implement benchmarking against SEBI-approved indices for transparent performance comparisons.
- Prepare for performance validation by ensuring historical return data is accurately recorded.
- Communicate rebalancing and update intervals clearly to investors.
Failure to comply with these guidelines within the stipulated timeframe may result in regulatory action. The goal is to create a structured and accountable investment advisory environment that prioritises investor interests.
Final Thoughts on SEBI’s Guidelines
SEBI’s new guidelines on model portfolios and performance validation are a significant step toward improving transparency, accountability, and investor protection in the financial markets. By standardising reporting, enforcing benchmarking, and introducing a performance validation agency, SEBI aims to ensure that research analysts provide well-structured and reliable investment recommendations.
For investors, these regulations offer greater clarity on portfolio construction, risk factors, and performance comparisons. For research analysts, compliance with these rules will enhance credibility and trust in their model portfolios.
As the compliance deadline approaches, investors and analysts alike must stay informed about these regulatory changes. Research-backed insights, such as those from Streetgains, can help investors navigate SEBI-compliant portfolios and make well-informed investment decisions.
Disclaimer:
The content in this blog is intended for informational purposes only and does not constitute investment advice, stock recommendations, or trade calls by Streetgains. The securities and examples mentioned are purely for illustration and are not recommendatory.
Investments in the securities market are subject to market risks. Please read all related documents carefully before investing.
SEBI’s Guidelines for Model Portfolios FAQs:
SEBI mandates that model portfolios include clearly defined stock selection methodologies, investment weightages, and a detailed research report. Portfolios must also have an assigned investment horizon, predefined rebalancing intervals, and risk disclosures. Performance benchmarking against SEBI-approved indices is also required.
SEBI’s guidelines require research analysts to disclose how stocks are selected, the rationale behind weightages, and the risks involved. By standardising these requirements, SEBI prevents misleading claims and ensures that investors receive complete and accurate information before making investment decisions.
Yes, SEBI’s guidelines apply to research analysts providing model portfolios to all investors, whether retail or institutional. These rules ensure that all investors receive consistent and transparent information, regardless of their investment size.
SEBI updates its regulations based on market developments and investor protection needs. The latest changes introduce structured reporting for model portfolios, enforce accurate performance validation, and require benchmarking against approved indices. The introduction of a Performance Validation Agency is one of the most notable updates.
SEBI is establishing a Performance Validation Agency to verify the performance claims of research analysts. The agency will ensure that reported returns, volatility, and risk levels are accurately measured and compared against benchmarks, reducing the chances of exaggerated or misleading claims.
Investment advisors must maintain accurate records of historical returns and disclose them in a transparent manner. Returns must be validated by SEBI’s performance validation agency and compared with relevant market benchmarks to give investors a fair assessment of past performance.
Yes, SEBI mandates that model portfolios be benchmarked against appropriate market indices. For example, a mid-cap-focused portfolio must be compared to a mid-cap index like Nifty Midcap 150, ensuring fair performance evaluation.
SEBI’s guidelines prohibit research analysts from making unverified or exaggerated claims about past performance. With the introduction of the Performance Validation Agency, all performance data must be reviewed for accuracy before being presented to investors.
Streetgains provides research-backed insights that help investors evaluate model portfolios in line with SEBI’s regulations. By analysing stock selection methodologies, risk factors, and benchmark comparisons, Streetgains enables investors to make informed decisions while ensuring compliance with SEBI’s guidelines.
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