The portfolio management services (PMS) industry is keeping its fingers crossed as the Securities and Exchange of India (Sebi) looks to overhaul PMS Regulations, 2020. Given the changes that are taking place in the market, experts believe that lower compliance burden would be one of the important moves that the regulator can make.
Last week, Sebi Chairman Tuhin Kanta Pandey had said the regulator will release a consultation paper on PMS regulations likely by June. The aim is to ensure that the framework remains effective, adaptive, and aligned with evolving market dynamics.
Addressing Rs 50 Lakh Entry Barrier
The PMS industry also seeks reviewing the current minimum investment threshold of ₹50 lakh. While this serves an important purpose, it may exclude a significant segment of investors who have the financial sophistication and appetite for PMS, but prefer to build up their corpus progressively.
A PMS investor is required to maintain the minimum balance of ₹50 lakh and any partial withdrawal is permitted only if the portfolio value remains above this level. However, any drop in the portfolio value due to the weakness in the market need not be filled by the investor.
Another area of focus is the rising burden of compliance for PMS, according to experts. The cumulative impact of new requirements include deviation of a major chunk of energy, time, and cost on compliance rather than core business management, they said.
Streamlining Compliance
The industry seeks simplification of periodic reporting and disclosure requirements, and review of the frequency and format of regulatory filings. Currently, PMS players must provide monthly performance reports to Sebi, quarterly reports on fees, risks, and portfolio performance to clients, and also do an annual audit of compliance and performance.
“Many reporting and filing practices are still paper-heavy and duplicate work. Fixed compliance costs hurt smaller managers more now,” Nikunj Saraf, chief executive officer at Choice Wealth, said. Unlike today, benchmarks and some thresholds were set when the industry was much smaller and had needed recalibration, Saraf added.
Some experts also suggested allowing fully-digital onboarding of non-resident Indians (NRIs) to the PMS industry. This will reduce operational challenges and speed up account set up, Mayur Shah, PMS fund manager at Anand Rathi Securities, said. Currently, digital onboarding is partially allowed for NRIs, with major restrictions such as requiring the investor to be physically present in India during the process, unlike resident Indians who can be onboarded from anywhere using Aadhaar and e-signature.
Further, some experts vouched for a common baseline NISM certification framework for distributors of PMS, alternative investment funds, specialized investment funds, and MFs as the foundational knowledge of markets, regulations, ethics, and investor protection is largely common across these categories. “That said, product-specific modules or add-on courses can address the nuanced differences between these vehicles,” Divam Sharma, co-founder and fund manager at Green Portfolio PMS, said.
Meanwhile, a few disagree. Saraf of Choice Wealth said that product-specific exams must remain, though a common basic course on ethics and markets should be fine. “PMS, AIF and MF work differently – specialists need specialised tests,” he added.