Market regulator Securities and Exchange Board of India hiked the minimum ticket size for Portfolio Management Services (PMS) from Rs 25 lakh to Rs 50 lakh. The net worth criteria has also been raised from the existing Rs 2 crore to Rs 5 crore, which has to be met within 36 months.
Some believe that the move could pave way for players to apply for Registered Investment Advisers (RIA) license which has a lower cost structure. Investment Advisers who are body corporate have to maintain a net worth of Rs 25 lakh. "The PMS or AMC licenses are only two of 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 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/RA license and create readymade portfolios with investor discretion for their clients," says Vasanth Kamath, CEO & Co-Founder, Smallcase Technologies.
Experts say that the increase in net worth and ticket size could slow down the growth of the PMS industry due to increased entry barriers. “The increase in investment limit and net worth 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. The increase in net-worth requirement to Rs 5 crores will also limit the number of new/existing businesses that want to obtain/retain the SEBI PMS registration. For retail investors who can’t go for structured products or PMS, readymade portfolios that are professionally managed are a very effective option to take exposure to high-quality strategies at reasonable costs," says Anish Teli, Founder of IndexAlpha, a SEBI registered PMS provider.
Further, portfolio managers have to mandatorily employ minimum one person with defined eligibility criteria in addition to Principal Officer and Compliance Office.
Discretionary Portfolio Managers will have to invest only in listed securities, money market instruments, mutual funds and such other securities/instruments. Non -discretionary/advisory portfolio managers cannot invest more than not more than 25% of their assets in unlisted securities. Also, appointment of custodian has been made mandatory, except for those providing advisory services.
These provisions will be applicable from January 1, 2020.
