Market regulator Sebi?s recent guidelines to hike the minimum investment amount to Rs 25 lakh from Rs 5 lakh for clients of portfolio management services (PMS) could make it tougher for smaller PMS players to survive.

?The move will hit hard brokers, who typically run small-sized portfolios,? said Shashank Khade, executive VP-PMS, Kotak Securities. ?Brokers target a large investor population with low ticket sizes to benefit from economies of scale. The viability of this business model will now come into question.? Khade added that banks, which mostly sell PMS products with a ticket size of under R15 lakh, might discontinue selling them as well.

According to Sameer Kamdar, CEO and MD, ASK Investment Managers, the ticket size will create a strong entry barrier for new entrants. ?It is a positive move from Sebi; only focused players will now want to be in the business,? he said. He added that Sebi?s move will help stop ?mass-selling? of PMS products and create a strong differentiation between the PMS and mutual fund businesses.

It is estimated that anywhere between 50-75% of clients currently invest in the R5 lakh to R25 lakh range. PMS licences have to be renewed every three years and fringe players will not be keen on renewing them, said market participants. Brokers mostly cater to clients with a ticket size of between R5 lakh and R10 lakh.

According to Sandip Sabharwal, CEO-PMS, Prabhudas Lilladher, smaller players will now have to double their sales efforts as the potential client base will reduce substantially. ?Clients that invest in excess of R25 lakh are better informed, so it will be difficult to pitch products to them,? he said. Added Kamdar: ?Finding clients with a higher ticket size in this kind of a market will not be easy.?

However, the impact on the PMS players will not be as grim as earlier expected. ?Sebi?s new guidelines apply to new investors and existing clients are under no compulsion to scale up their investments,? said Khade. However, he pointed out that there was still some ambiguity surrounding family investments into PMS: ?If a family of four invests R25 lakh, then will that be considered as one account or four separate accounts??

The number of registered portfolio managers increased from 232 in FY09 to 267 in FY11 but has since declined to 246 as of November 2011, according to Sebi data. Total assets under management of the PMS industry, excluding the AUM under advisory services, stood at R3.26 lakh crore as of November 2011.