Sebi's Parrva framework: Will it build confidence in investment performance claims?

Copyright © HT Digital Streams Limit all rights reserved. Money Shivan Maheshwari 3 min Read 15 Apr 2025, 03:20 Ist New Chairman of Securities and Exchange Board of India Tuhin Kanta Pandey. (File Photo: Reuters) Summary To strengthen Trust in India’s Securities Market, Sebi launched a framework for the verification of past claims by investment advisors and analysts. The new system seeks to prevent misleading data and to give investors reliable insights, but the challenges in execution remain. In a significant step after improving transparency and accountability in the Indian security market, the Securities and Exchange Board of India (Sebi) issued a circular on April 4 detailing the regulatory framework for the previous performance and risk-grief agency (PARRVA). This framework introduces a mechanism to verify the past performance claims by investment advisors (IAS), research analysts (race) and Algo providers (jointly regulated persons). In terms of the new framework, a registered credit rating agency will be named Parrva, an independent body responsible for the verification of the risk -sophistic statistics of investment advice, strategies and model portfolios before being displayed or promoted in public. Parrva will work with a recognized stock exchange to establish the Parrva Data Center (PDC), which will serve as its data collection and distribution of the center. Read it | Sebi’s Parrva To verify the claims of IAS, Algo providers of the PDC, the PDC, in partnership with other market infrastructure institutions (MIIs), AMFI (for mutual fund Navs), and regulated persons. Using this data, the PDC will generate verified outputs based on a methodology set by Parrva. These verified data sets will then be made available in public on Parrva’s website, complete with detailed revelations and disclaimer. The framework contains specific guidelines to prevent selective or misleading offers from past achievements. Regulated people can no longer display only a single successful inventory choice, model portfolio or algorithm. They must offer the entire set of recommendations or strategies submitted for verification, accompanied by appropriate disclosures, risk judgments and QR codes linking to Parrva for full performance details. The framework also requires that performance data for defined timeframes to be displayed, which explicitly prohibits forbidden cherry selection or arbitrary date choice. Previously, regulated persons were prohibited from advertising their performance in the past or displaying publicly to prevent misrepresentation. Although this limitation was well intended, it created a contradiction, as mutual funds have long been allowed to disclose their performance in the past with appropriate disclaimer. For investors, evaluating a mutual fund or an investment advisor typically determines how the product or advice has performed in the past. In this context, a blanket ban on IAS and race that has shown achievements in the past can have been excessive. Instead of a direct ban, Sebi could enable performance disclosures with strong precautions, such as compulsory risks, standardized formats and the full disclosure of the number and series of recommendations. Read it | Why SEBI regulation on research analysts facilitates the access barrier, but increases interests if it is found that an IA or RA had incorrectly proposed data, Sebi could use its existing regulatory powers to maintain battle. The introduction of Parrva addresses this long -standing issue. The purpose of SEBI appears to be twofold: to allow regulated persons to deliver their performance in the past, while these claims are insured by an independent and neutral process that investors can trust. Read it | Within Sebi’s plan to verify investment performance claims in this sense, the PARRVA framework strikes a balance, which allows regulated persons to showcase their track records, while minimizing the risk of cherry picking or exaggeration. However, the framework poses practical challenges. The large amount of data to be processed-especially as hundreds of regulated persons in real time or end-of-day recommendations if-can Parrva and the PDC tax, which a robust infrastructure requires to manage this scale effectively. Since the framework does not specify the maximum fees that Parrva may charge, smaller regulated persons may be financially tricky, which may limit the scalability and uptake of the framework. Parrva will also play an important role in shaping the public perception of the performance of a regulated person, so it must ensure uniform standards, resolve disputes immediately and maintain confidence as a neutral third party. Another significant gap is the exclusion of mutual fund distributors (MFDs) of this verification framework. As many MFDs provide investment advice and financial planning services, especially for mutual funds, their exclusion creates a regulatory gap. If the goal is to standardize the verification of all types of investment advice, Sebi may want to consider expanding the appropriateness of Parrva to include MFDs. This is not to say that Parrva is unnecessary – the opposite. It is a thoughtful intervention in a market that is increasingly populated by influencers, tipters and unregulated entities that make non -marked performance claims. The most important challenge lies in performance. Read also | The head of SEBI warns against the “sled -hammer” regulation in complex F&O market if implemented effectively, the framework can enable regulated persons to display their performance in the past and possibly attract more investors. However, as always, performance in the past is not a reliable indicator of future returns. Shivaan Maheshwari is a financial regulatory lawyer. Views expressed are personal. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #Money #sebi #Investing Mint Specials