Sebi Hiking PMS Investment Limit To Rs 50 Lakh Will Attract Clients With Larger Networth: Experts

Mumbai, November 21: The Securities and Exchange Board of India (Sebi) board approved amendment to the Sebi (Portfolio Managers) Regulations, a move, experts said, will enhance the eligibility criteria and define the role of principal officer clearly. The board of the market regulator also decided to raise the minimum investment amount of clients for Portfolio Management Schemes to Rs 50 lakh from existing Rs 25 lakh. With this move, Sebi wants to keep retail investors away from portfolio management schemes (PMS). Sebi Chairman Ajay Tyagi said after the board meeting that the market regulator has decided to increase the networth requirement of portfolio managers to Rs 5 crore from existing Rs 2 crore. He further said the existing portfolio managers will have to meet the enhanced requirement within 36 months.

What is PMS?

Under the Portfolio Management Scheme, an investor can invest a lump sum as part of specialised investment vehicle. PMS offers investors a range of investment strategies and facilitates their investments in equities. The portfolio manager will invest that money according to the investment need of the client. 

Under the new norms, a portfolio manager needs to mandatorily employ minimum one person with defined eligibility criteria in addition to principal and compliance officer. “Minimum investment by clients of portfolio managers to be increased from Rs 25 lakh to Rs 50 lakh. Existing investments of clients may continue as such till end date of PMS agreement or as specified by the board,” SEBI said. 

Vasanth Kamath, CEO and Co-Founder, Smallcase Technologies said that the PMS or AMC licenses are only two of the many ways that Sebi allows investment professionals to showcase their research and create investable products. The other two common ones are Research Analysts (RAs) and Registered Investment Advisors (RIAs). “These licenses have a lower net-worth requirement and other setup costs, and as such this directive will encourage even more investment professionals to apply for the RIA or RA license and create ready made portfolios with investor discretion for their clients,” Kamath said.

PMS products to be investor friendly

According to Anish Teli, Founder of IndexAlpha, a Sebi-registered PMS, changes in guidelines aim to make PMS products more transparent and investor friendly. However, the increase in investment limit and networth criteria are likely to slow down the growth seen by the PMS industry, since the market of potential investors will reduce with the doubling of the minimum investment amount to Rs 50 lakh, he said. “The increase in net-worth requirements to Rs 5 crore will also limit the number of new or existing businesses that want to obtain or retain the Sebi PMS registration.” For retail investors who can’t go for structured products or PMS, ready made portfolios that are professionally managed are a very effective option to take exposure to high-quality strategies at reasonable costs.

Move to ensure larger net worth clients

Ashish Shanker, Head - Investment Advisory, Motilal Oswal Private Wealth Management said, “The 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 networth will ensure serious players remain in the business.”