At present, Sebi norms require a minimum corpus to open a PMS account. In a circular issued early this week, Sebi has asked portfolio managers to refrain from the practice of organizing investment portfolios as schemes similar to mutual funds schemes while marketing their products.
It’s latest move is part of series of measures that it had undertaken in the last few months to bring more uniformity, clarity and transparency in the way the PMS activities are undertaken in the market.
The action by Sebi follows consequent to several instances coming across where portfolio managers accepted funds less than Rs 5 lakh while opening client account on the basis of client’s commitment that the stiplulated amount would be brought soon.
Further, portfolio managers were directed to disclose the performance of portfolios grouped by investment category for the past three years in their respective websites and such disclosure documents are needed to be given to all clients along with the account opening form at least two days in advance of signing of the agreement.
Streamlining activities
As part of streamlining the activities under PMS, Sebi in the first week of last month had asked portfolio managers to share profit or performance-related fees on the basis of high water mark principle over the life of the investment. Simply put, if the portfolio goes down and then recovers, the portfolio manager cannot charge fees until all losses have been made up, according to Sebi.
Also, PMS industry can charge the performance-based fee only on increase in portfolio value in excess of the highest return generated during the previous years, it added.
These measures have come into effect from November 1, this year for all fresh client agreement and for existing clients, the revised terms will be implemented by January 1, 2011.