Sebi mulls 5-fold rise in ticket size for portfolio services

BS 27/8/09

Plans to raise networth requirement for floating portfolio services.

The Securities and Exchange Board of India (Sebi) is planning a five-fold increase in the ticket size for investing in portfolio management service (PMS) schemes — from Rs 5 lakh to 25 lakh.

After making it mandatory to segregate accounts of PMS investors, the market regulator is also mulling to raise the networth requirement for floating a PMS. Sources in the know said that Sebi might raise it to Rs 5 crore from the current requirement of Rs 2 crore.

Sebi is actively considering these moves following a number of complaints from small PMS investors, who were taken for a ride in terms of returns as well as default on client obligations by the players. The market regulator basically wants to bring in better quality standards and ensure that only serious players are in the business.

Experts said that Sebi would like smaller ticket sizes to go into mutual funds and bring only sophisticated and savvy investors into PMSs.

Brokerages such as Sharekhan, Reliance Money and Motilal Oswal offer portfolio schemes starting at Rs 5 lakh. Sharekhan has products based on technical analysis such as Nifty Thrifty and Beta Portfolio with a minimum investment of Rs 5 lakh and a lock-in period of six months. Reliance Money, too, has portfolio management services starting at Rs 5 lakh.

Manish Porecha, head of PMS at Sharekhan, said: “If the investment ticket size is increased, it will be a welcome move for us as we will have to focus on fewer but quality customers. Having said that, there is a lot of appetite for PMS at the beginner’s level. There are lots of such investors who do not want to go to mutual funds, but at the same time want professional fund management. It will stop such investors from testing the market.”

PMS as a product has been fraught with discrepancies as there are minimal disclosure requirements, less accountability and several grey areas in regulation. These discrepancies leave it to the mercy of brokers and PMSs to interpret it in ways that suit them.

According to sources, Sebi is also looking at getting the accounts of PMS providers audited on a periodic basis to bring in more transparency. Last year, the regulator had asked stock brokers/clearing members to carry out complete internal audits on a half-yearly basis by independent qualified chartered accountants.

“Sebi has been discussing these issues with the PMS industry and might come up with new norms very soon,” said a source, who did not wish to be named.

“These steps are aimed at investor protection, similar to what the regulator did in case of mutual funds. They want to ensure better operational efficiencies and impose compliance cost in PMSs,” said Sriram Venkatasubramanian, head, FCH Centrum Wealth Management.

According to rough estimates, close to Rs 50,000 crore is being managed under PMSs. There are more than 300 Sebi-registered portfolio managers. However, experts said that there were a large number of unregulated entities practising it under the garb of colective investment schemes in Tier-II and III towns.

A lot of PMS providers show handsome indicative returns to woo clients. However, the actual returns that they give are quite different from the projected ones. Also, there are issues of preferential treatment to bigger and important clients, frequent churning of portfolio and higher management fees. While Sebi is looking to address these concerns, experts are of the view that it will be difficult for the regulator to regulate every aspect of portfolio management services.

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