Sebi ups PMS limit to Rs 50L, networth need to Rs 5 cr

With a view to keep retail investors away from portfolio management schemes (PMS), Sebi on Wednesday decided to raise the minimum investment amount of clients for such schemes to Rs 50 lakh from the earlier Rs 25 lakh.

Besides, it has decided to increase the net worth requirement of portfolio managers to Rs 5 crore from Rs 2 crore, Sebi Chairman Ajay Tyagi told reporters after the board meeting.

He further said the existing portfolio managers will have to meet the enhanced requirement within 36 months.

PMS offers investors a range of specialised investment strategies to capitalise on opportunities in the market and made suitable to the needs of individual clients.

The Sebi board has approved an amendment to the Sebi Portfolio Managers Regulations, which will enhance the eligibility criteria and define the role of principal officer clearly.

Under the new norms, a portfolio manager needs to mandatorily employ minimum one person with defined eligibility criteria in addition to principal and compliance officer.

"Minimum investment by clients of portfolio managers to be increased from the 25 lakh to Rs 50 lakh. Existing investments of clients may continue as such till end date of PMS agreement or as specified by the board," Sebi said.

The regulator further said discretionary portfolio managers will invest only in listed securities, money market instruments and mutual funds, while non discretionary managers will have to invest not more than 25 per cent of their assets under management in unlisted securities.

The appointment of custodian will be mandatory for all portfolio managers, except for those providing only advisory services to clients.

Experts said that Sebi's decision of increasing the investment limit in PMS and networth criteria for portfolio managers is a bit restrictive and may slow down the growth in this industry. Through this move, the regulator has made it clear that major section of the retail investor should come through mutual fund route.

"Hiking the investment limit for PMS from Rs 25 lakhs to Rs 50 lakhs is a bit restrictive. Many potential investors are likely to be denied the benefits of PMS," said V K Vijaykumar, Chief Investment Strategist at Geojit Financial Services.

Anish Teli, founder of IndexAlpha, a Sebi-registered PMS, said the increase in investment limit and networth 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 requirements to Rs 5 crore 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," he added.

Prakarsh Gagdani CEO at 5Paisa.com said, "By increasing the PMS limit, Sebi has made it very clear that major section of the retail investor should come via mutual fund route. Customised portfolio management is designated only for HNIs, hence clearly demarcating the customer categories".