SEBI move to double minimum PMS investment limit aimed at protecting interest of retail investors

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Updated: November 21, 2019 8:40:07 AM

Market regulator Securities and Exchange Board of India (SEBI) has decided to make the rules of Portfolio Management Service (PMS) more stringent.

Securities and Exchange Board of India, SEBI, Portfolio Management Service, PMS, HNIs, mutual fund, MF, retail investors, Portfolio Managers, unlisted securities, minimum PMS investment limitSEBI has also enhanced the net worth eligibility of portfolio managers from Rs 2 crore to Rs 5 crore.

Market regulator Securities and Exchange Board of India (SEBI) has decided to make the rules of Portfolio Management Service (PMS) more stringent. PMS is a sophisticated investment vehicle that offers customised investment strategies especially to high net worth individuals (HNI) who want something different from the products available to small investors.

In order to capitalise on opportunities in the market, HNIs consider it a prestige issue to avail specialised services of experienced portfolio managers through the PMS, which is customised for the high-end clients.

However, PMS schemes usually have less diversified portfolios and may even invest in unlisted securities, so are considered riskier than mutual fund (MF) schemes that are closely monitored and stringently regulated by SEBI.

Moreover, expense ratio of PMS schemes are higher than that of MFs’, which makes it more lucrative for the relationship managers of brokerage houses to divert customers towards PMS.

To protect retail customers from PMS exposure, market regulator SEBI has doubled the minimum investment limit from existing Rs 25 lakh to Rs 50 lakh and enhanced the net worth eligibility of portfolio managers from Rs 2 crore to Rs 5 crore.

“By increasing the PMS limit SEBI has made it very clear that major section of the retail investor should come via mutual fund route. Customised portfolio management is designated only for HNIs, hence clearly demarcating the customer categories,” said Prakarsh Gagdani, CEO, 5Paisa.com.

The market regulator has also directed non-discretionary Advisory Portfolio Managers not to invest more than 25 per cent of their asset under management (AUM) in unlisted securities.

Expressing his opinion on SEBI’s latest move, Ashish Shanker, Head – Investment Advisory, Motilal Oswal Private Wealth Management: “The SEBI announcement is positive. Moving the investment to Rs 50 lakh will ensure larger net worth clients who have the ability to work with an advisor to evaluate better will come into portfolio management schemes. Increase in net worth will ensure serious players remain in the business.”

Welcoming the decisions of SEBI, Lav Chaturvedi, ED and CEO, Reliance Securities said, “SEBI’s decision to increase net worth criteria for PMS is a welcome move which is more to do keeping in mind investors safety and ensure there are serious players in the industry. Second increasing ticket size will ensure only well informed investors will participate in the high-risk products offerings.”

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