Mumbai, November 21: In order to bring more transparency and drive away smaller investors from the more riskier structured product trading, the capital market regulator Securities and Exchange Board of India (Sebi) has hiked minimum investment limit for the investors from Rs 25 lakh to Rs 50 lakh. This move is intended to make the market safe for the smaller investors. It will also ensure more and more investors not qualifying for the PMS, will prefer to go to Mutual Funds (MFs).
Sebi hiked the networth requirement of players offering Portfolio Management Services (PMS) from Rs 2 crore to Rs 5 crore. Enhancing the networth requirement will bring more transparency in the market segment. It will also ensure that only serious players stay in the market, experts have opined. It will also ensure that professionals in the field of investment advisory will opt for lower networth requirement segments like Research Analysts and Registered Investment Advisors (RIAs).
Makarand Joshi, partner, MMJC and Associates said, “Sebi’s decision has put in several entry barriers by increasing minimum net-worth requirement and minimum investment limit as also employment of one eligible person in addition to the compliance and principal officer. This may also lead to consolidation of PMS business to some extent. This may also result into increase in flow of investments in other investment opportunities like Mutual Fund”.
Sandeep Shah, Managing Ppartner, NA Shah Associates LLP, said, “The regulator has followed a strategy normally adopted by the Reserve bank of India (RBI) while granting Banking license. It has made entry norms stricter for PMS players. This will weed out weaker and non-serious players and ensure that smaller investors stay away from the structured and complicated products offered through PMS”.
Further some discretionary PMS were also putting money of clients into unlisted Debentures that were issued by annuity generating business like rental income, which might stop now as Sebi has prescribed a list of financial instruments where these players can park PMS funds and has insisted on strict compliance of this. “Investors are believed to have lost a lot of money in unlisted debentures of real estate project that probably has triggered the change,” said Joshi, partner, MMJC and Associates – a corporate compliance firm.
As the the ticket size has been doubled, Markt participants said more clarity is required with respect to risk strategies to be opted by the PMS operators.
Dhaval Kapadia, Director – Portfolio Specialist, Morningstar Investment Advisors India said, “Within PMS products there are different strategies with varying levels of risk such as concentrated equity strategies vis-a-vis multi-asset strategies that invest only in mutual funds or exchange traded funds (ETFs). Accordingly, it’s not clear this has been considered while defining minimum investment tickets and whether investment minimums should be retained at Rs 25 Lakh for multi-asset MF/ETF portfolios vs higher risk strategies”.
The increase in net-worth requirements to Rs 5 crore will also limit the number of new/existing businesses that want to obtain/retain the Sebi PMS registration
Anish Teli, Founder of IndexAlpha, a SEBI registered PMS said, ““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."
Vasanth Kamath, CEO & Co-Founder, Smallcase Technologies said, "The PMS or AMC licenses are only 2 of many ways that SEBI allows investment professionals to showcase their research & create investable products. The other 2 common ones are Research Analysts (RAs) and Registered Investment Advisors (RIAs). These licenses have a lower net-worth requirement & other setup costs, and as such this directive will encourage even more investment professionals to apply for the RIAs/RAs license and create readymade portfolios with investor discretion for their clients."