SEBI's PARRVA Scheme: Will It Build Trust in Investment Performance Claims?

In a move to enhance transparency and accountability in India's securities market, the Securities and Exchange Board of India (Sebi) issued a circular on 4 April, outlining a regulatory framework for Past Performance and Risk-Return Verification Agency (PaRRVA).

- Shivaang Maheshwari

The framework introduces a system to verify performance claims made by investment advisors, research analysts, and algo providers (collectively, regulated persons).

A registered credit rating agency will be designated as PaRRVA, tasked with verifying risk-return metrics of investment advice, strategies and model portfolios before they are promoted or displayed. PaRRVA will work with a recognized stock exchange to set up the PaRRVA Data Centre (PDC), which will act as its data collection and dissemination hub.

The PDC, in partnership with other Market Infrastructure Institutions (MIIs), AMFI (for mutual fund NAVs), and Regulated Persons, will gather raw data. It will use this data to generate verified outputs based on a methodology set by PaRRVA. These verified data sets will be published on PaRRVA's website with detailed disclosures and disclaimers.

The framework aims to prevent selective or misleading performance displays. Regulated Persons can no longer highlight a single successful stock pick, model portfolio, or algorithm. They must present the full set of recommendations or strategies submitted for verification, along with disclosures, risk caveats, and QR codes linking to PaRRVA for complete performance details.