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India’s HNI Continues To Invest Faith In Portfolio Management Services

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India’s HNI Continues To Invest Faith In Portfolio Management Services
Himali Patel - 15 January 2020

Portfolio management services (PMS) is an investment tool, which has been designed keeping in mind high net worth individuals (HNI) who have a high risk appetite. With an increase in HNI population, this investment tool continues to remain a favourite among India’s super rich.

Sushant Bhansali, CEO of Ambit Asset Management throws light on this particular investment and explains why it continues to win over the HNI-specific populace of the country. Excerpts from an interview with Himali Patel.

1. What is a PMS and which set of investors is best suited for?

Portfolio Management Services, widely known as PMS, are customised investment offerings mainly targeted at High Net Worth clients/individual (HNIs) (the current regulatory minimum investment is Rs 0.25 crore, slated to be Rs 0.50 crore). Investments can be made across asset classes, but most of the prevalent schemes currently offer listed equities.

2. What is the current fee structure of PMS funds and how much do stocks, MFs or any other kind of financial tool constitute in any basic PMS offered? (in per cent or numbers)

Portfolio managers offer varied fee structures to their clients, as a combination of fixed and variable rates. There is no uniform regulatory fee structure in PMS. Similarly, the asset allocation is distinct in each strategy offered by Portfolio Managers. Most equity PMS managers invest in 20-35 stocks in client portfolios, which is quite concentrated as compared to regular mutual funds where this number varies between 40-70 stocks.

3. Unlike direct equity or mutual funds, PMS is less transparent as there are no investment objectives, past performance and fund strategies. Then how would one know which PMS to choose from?

PMS returns are under regulatory process of standardisation i.e. on a Time-Weighted Rate of Return (TWRR) basis, but still scheme comparisons under the schme is somewhat difficult. Infact, client portfolio returns can be very different from aggregate scheme level returns in the short term. That said, most portfolio managers do publish basic comparison metrics. One should look at concentration levels, market cap bias (large cap / mid cap/ small cap/ Multi cap), AUM size, and then compare returns and risk ratios, along with a comparison to benchmark indices.

4. How are returns measured under PMS?

Most portfolio managers report consolidated returns across all clients managed by them under each scheme. However, this process is yet to be standardised yet, unlike mutual funds. Sebi has recently released a regulation whereby returns will have to be reported for each scheme on TWRR basis by experienced portfolio managers.

5. What has been the growth of PMS in the last five years? What has been Sebi’s role in promoting PMS?

PMS AUMs have seen a healthy growth rate of 25 per cent+ between FY2013 to FY2018. FY2019 and FY2020 have been relatively tough for the Industry where most of the players have not been able to grow their AUMs. Having said that, select established and a few new managers have been able to ramp up their AUMs at high rates (albeit on a small base in most cases), on the basis of their track record and/or differentiated strategy.

Sebi has not regulated PMS on the lines of regulating Mutual Funds so far. The regulator has left the industry to evolve on its own, before enhancing the regulatory framework. As a regulator, it is not expected of Sebi to promote a particular industry. But the enhancement of regulations on the mutual funds industry, has aided the growth of the PMS industry. By increasing the minimum investment amount, Sebi has ensured that PMS continues to remain an HNI-specific industry, where investors can make informed choices and the mis-selling of financial products is reduced.

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