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News: SEBI has proposed a comprehensive review of the Portfolio Managers Regulations, 2020, to modernize Portfolio Management Services amid rapid industry growth.
About Portfolio Management Service (PMS)
- Portfolio Management Service (PMS) is a professional investment service where a qualified portfolio manager manages a client’s investment portfolio.
- Registration: PMS providers must be registered under the SEBI (Portfolio Managers) Regulations, 2020.
- Minimum Investment: SEBI requires a minimum investment of ₹50 lakh per client.
- Eligible Candidate: PMS is meant for high net-worth individuals and other eligible entities such as NRIs, HUFs, and partnership firms, among others, subject to applicable rules.
- Types of Portfolio Management Services (PMS): PMS in India is classified into three primary categories based on the degree of control and investor involvement:
- Discretionary PMS: The portfolio manager makes investment decisions on behalf of the investor.
- Non-Discretionary PMS: The portfolio manager gives investment advice, but the investor makes the final investment decisions.
- Advisory PMS: The portfolio manager provides advice, and the investor independently executes the transactions.
- Key Features of PMS:
- Professional Management: A qualified portfolio manager manages investments in equity, debt, and other securities.
- Customized Portfolio: Investment strategies are tailored to the investor’s financial goals and risk profile.
- Direct Ownership: Investors directly own the securities held in their portfolio.
- Transparency: PMS providers regularly update investors with performance reports, fees, and risk disclosures.
SEBI’s Proposals for PMS
- Wider Investment Options: Portfolio managers may invest in overseas securities, to-be-listed securities, and limited unlisted debt securities.
- It has also proposed allowing discretionary portfolio managers to invest up to 10% of a client’s assets under management (AUM) in investment-grade unlisted debt securities.
- Mutual Fund-Only Category: A separate MF-PMS category has been proposed with lower investment and net worth requirements.
- It has proposed reducing the minimum client investment from ₹50 lakh to ₹25 lakh and the minimum net worth requirement for applicants from ₹5 crore to ₹2 crore.
- Operational Flexibility: SEBI has proposed greater flexibility in using derivatives for hedging and investment strategies, with exposure allowed up to 1.25 times the client’s AUM.
- Lower Compliance Burden: Smaller firms managing assets below ₹100 crore may not need a separate dealing room.
Potential Impacts on Investors
- Greater Investment Choice: Investors may receive broader and more diversified investment opportunities.
- Improved Flexibility: The proposals may provide more customized portfolio management while maintaining investor protection.
