MITC In Investment Advisory: SEBI’s Latest Circular Explained

Posted On - 26 March, 2025 • By - King Stubb & Kasiva

Introduction

On February 17, 2025, the Securities and Exchange Board of India (“SEBI”) issued a circular outlining the Most Important Terms and Conditions (“MITC”) that investment advisers (“IAs”) must incorporate into their agreements with clients.[1] The aim of this circular is to enhance transparency, protect investor interests, and standardize industry practices. By standardizing MITC, SEBI further aims to eliminate misleading practices, set clear boundaries for IAs, and enhance grievance redressal mechanisms.

Understanding the Circular

Inclusion of MITC in Investment Advisory Agreements

  • As per Regulation 19(1)(d) of SEBI (Investment Advisers) Regulations, 2013, IAs are required to include MITC in investment advisory agreements with their clients.
  • These terms have been standardized by the Industry Standards Forum (“ISF”) in consultation with SEBI and Investment Advisers Administration and Supervisory Body (“IAASB”).

Implementation Timeline

  • IAs are required to inform their existing client about the MITC by June 20, 2025. This information can be given via email or any other recordable means.
  • With respect to new clients, post the introduction of this circular, the IA agreement itself needs to include MITC before any engagement. This has to be done with explicit client consent.

Major Conditions Outlined in MITC

Fee Payments & Limits

  • IAs cannot accept client funds or securities in their accounts; they can only accept advisory fees.
  • There are certain fee limits that have been imposed for individuals and HUFs. They are:
    • Fixed Fee Mode: ₹1,51,000 per annum per family.
    • AUA (Assets Under Advice) Mode: 2.5% of AUA per annum per family.
  • The mode of the fee can be changed, however, there remains a maximum cap. This cap is higher of ₹1,51,000 or 2.5% of AUA.
  • The fees can even be collected in advance, for up to two quarters. If the services terminate earlier, the IA is required to refund the proportionate fees. However, they are allowed to retain up to one-quarter’s fee as breakage cost.
  • Cash payments are not allowed; the fees have to be paid through cheque, bank transfer, UPI, or Centralized Fee Collection Mechanism (“CeFCoM”).

Investment Advice & Risk Disclosure

  • There are no guaranteed or assured returns. All investments are subject to market risks.
  • IAs are not allowed to execute trades on behalf of clients without their explicit consent for each particular transaction.
  • The advice is limited to securities under SEBI’s purview. If IAs, at any point, offer non-SEBI-regulated services, they are required to disclose this as well as obtain a declaration from the client.

Client Risk Profiling & Suitability

  • Clients are required to share their financial details to obtain proper advisory services. These details include income, existing investments, liabilities, etc.
  • IAs are required to conduct risk profiling and suitability analysis before they give their advice and they are also required to update it regularly.
  • The advice has to align with the client’s risk profile, and this has to be communicated to them.

Conflict of Interest Management

  • IAs are not allowed to provide distribution services, like commission-based products, to clients or their family members.
  • IAs should advise direct plants, which are not commission-based, whenever it is possible.
  • Any potential conflict of interest must be disclosed to clients.

Client Protection Measures

  • Grievance Redressal:
    • Step 1: Contact IA using details on their website.
    • Step 3: If still unsatisfied, escalate through Smart ODR (https://smartodr.in) for online dispute resolution.
  • Client Confidentiality: IAs must never ask for trading account, demat, or bank login details or OTPs. Moreover, clients should also never share these credentials.
  • Communication Updates: Clients are required to keep their contact details, including their email and mobile, updated with the IA.

Conclusion

SEBI’s latest circular on MITC introduces much-needed clarity and discipline in the investment advisory space. By capping fees, enforcing strict risk disclosures, and eliminating conflicts of interest, the regulations place investor protection at the forefront. The emphasis on transparency ensures that clients understand what they are paying for and the risks involved. Mandating grievance redressal mechanisms also strengthens investor confidence. While compliance may require operational changes for investment advisers, it ultimately reinforces accountability in the industry.

[1] https://www.sebi.gov.in/legal/circulars/feb-2025/most-important-terms-and-conditions-mitc-for-investment-advisers_91963.html.