The capital market regulator Securities and Exchange Board of India (Sebi) is considering a proposal to increase the minimum threshold limit for portfolio management service (PMS) to Rs 25 lakh from the current Rs 5 lakh. ?Sebi had discussed the proposal to increase the minimum investment limit but no final decision has been taken yet,? a Sebi official said on the condition of anonymity. This could have repercussions for small and medium investors with a corpus of Rs 5 lakh to Rs 20 lakh, he added.
However, some experts believe raising the cut-off was long due. The Rs 5-lakh threshold was decided long time back and wealth of the nation has increased manifold ever since. According to the 2010 Merrill Lynch-Capgemini World Wealth Report, in India, the number of high net worth individuals with minimum investable assets of $1 million (around Rs 4.5 crore) rose 51% to 1,26,700 in 2009 as compared with the previous year.
Some investment bankers also agree on the wealth effect. They believe the definition of a retail investor needs to be tweaked in case of IPOs. Today, applications for investments above Rs 1 lakh are considered as from HNIs. Investment bankers find a large percentage of retail applications for IPOs happening in the 90,000 to Rs 1 lakh range. This indicates that given a higher threshold, retail applications could come for higher amounts.
There are 243 Sebi-registered PMS providers in India while 15 new players await the regulator’s approval. Kotak, ICICI Pru, India Infoline and Motilal Oswal are among the top PMS providers in the country.
Large PMS providers with assets under management(AUM) of over Rs 1,000 crore have kept the threshold limit higher ? Rs 50 lakh to Rs 1 crore. In contrast, small and medium size firms have a lower entry limit, which could now affect their business. ?With Sebi banning entry load for the mutual fund industry, a lot of asset management companies are now turning towards PMS. AMC’s that initially had kept a higher entry limit to the tune of Rs 25 lakh ?Rs 50 lakh have now started lowering their ticket size, which will allow them to compensate their loss of fees from selling mutual funds by charging PMS investments ? said a CEO of a leading wealth management firm which manages over Rs 1,000 crore of AUM.
Off late the market regulator has been considering to actively regulate the PMS business where the norms are not as stringent as in the mutual fund business. Earlier in 2008, the regulator had increased the net worth requirement for PMS providers to Rs 2 crore from Rs 50 lakh, to keep off non-serious players.
The Committee on Review of Eligibility (CORE) norms for market intermediaries by Sebi had recently recommended the net worth requirement for PMS to be pegged to the AUM. Accordingly, the committee had suggested that the AUM should not be more than 50 times of their net worth subject to a minimum net worth Rs 2 crore.