In a move to attract affluent investors to mutual funds, the Securities and Exchange Board of India (Sebi) on Thursday proposed creating a mutual fund-only portfolio management service (MF-PMS) category.
Under the proposed framework, portfolio managers will invest exclusively in mutual fund products, with the minimum investment threshold set at Rs 25 lakh, compared with Rs 50 lakh for conventional PMS. Investments will be made in direct plans of mutual funds, including exchange-traded funds (ETFs) and specialised investment funds (SIFs).
Portfolio managers seeking to operate exclusively within the securities permitted under the MF-PMS framework will be required to obtain a separate registration. Sebi has also proposed reducing the minimum net worth requirement for portfolio managers to Rs 2 crore from Rs 5 crore.
The MF-PMS framework will be exempt from exit loads, similar to existing PMS portfolios, to ensure that investors do not pay exit loads twice.
Lower Barriers
A Balasubramaniam, MD and CEO, Aditya Birla Sun Life Mutual Fund, said the proposed framework was a sign of innovation and would give registered investment advisers (RIAs) and mutual fund distributors greater flexibility to choose the investor segments they want to cater to and expand their businesses.
Sandeep Tandon, CIO and money manager, Quant Mutual Fund, said the proposed framework would be more tax-efficient than conventional PMS and benefit affluent investors who cannot afford conventional PMS.
According to another mutual fund CEO, the product would allow PMS managers to diversify portfolios across equity, debt, gold, silver and other schemes. While this could result in higher churn and, consequently, higher tax costs, the ability to generate higher returns could offset these costs, the CEO said.
Simplified Compliance
Sebi has also proposed simplifying certification requirements for principal officers and relaxing the eligibility criteria. Currently, portfolio managers are required to have a graduation degree and two years of experience in the securities market as a portfolio manager, stock broker, investment adviser, research analyst or fund manager. The requirement for an additional employee and a dedicated dealing room has also been proposed to be made optional.
On fees, the regulator has proposed a fixed fee of up to 2.5% of the client’s assets under management. Portfolio managers may also charge a combination of fixed and performance-based fees, subject to the client’s consent.
Mutual fund distributors registered under the MF-PMS framework will be required to maintain an arm’s-length relationship between their mutual fund distribution and MF-PMS activities. They will also have to ensure client-level segregation and cannot offer both services to the same client.
The regulator has invited comments from stakeholders on the proposal by August 13.
