PMS distributor test is a hard nut to crack, say market players

Any entity wanting to become a PMS distributor has to appear for an exam conducted by the National Institute of Securities Markets (NISM).

At a time when the popularity of portfolio management services (PMS) is on the rise, entities looking to enter the arena as distributors of the product are facing a tough challenge as many are finding the mandatory exam a bit too difficult to clear.

Any entity wanting to become a PMS distributor has to appear for an exam conducted by the National Institute of Securities Markets (NISM) – the nodal body for various certifications mandatory for market participants – and currently the pass percentage of the test – known as XXI – A – is pegged at 31 percent.

According to an NISM official, this is much lower compared to the pass percentage of many other tests conducted by the institute. The pass percentage for the test for becoming a mutual fund distributor is around 45 percent, he said. Pass percentage or pass rate is the number of people, who were successful in a particular exam.

Market participants attribute this to the structure of the test, which many find it difficult to clear. They highlight that the PMS distributor test has questions based on numbers and calculations which is not the case with the test that one needs to clear to become a mutual fund distributor.

Piyush Chandra, Vice President at IIFL Securities, said that many PMS distributors find the exam difficult due to its in-depth questions, unlike the more generic mutual fund distributor exam.

The PMS exam focuses heavily on numerical questions about cash flows and XIRR, whereas the mutual fund exam has fewer numerical questions, allowing candidates to score well even if they skip them, he added.

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More importantly, the PMS exam has negative marking of 25 percent even as there exists no such framework for the MF distributor exam.

“In PMS exam, even guesswork can't be done,” said a distributor on the condition of anonymity. “Further, the PMS distributor module also includes questions and case studies related to investing, which is very limited or absent in the mutual fund distributions certification exam,” he added.

Another distributor who recently cleared the exam said that the mutual fund distributor exam is easy because the chances of misleading an investor in a mutual fund is very less, since they are not a complicated product like PMS.

NISM's efforts
NISM, meanwhile, has added more model questions and training modules to its syllabus in the last one year as part of its attempts to help those wanting to appear and clear the PMS distributor exam.

“The PMS distributor exam is not a very new exam and as the exam matures, the pass rate will increase,” said an NISM official while adding that the pass rate when the exam started in FY21 was at 17 percent from where is has climbed up to the current level of over 30 percent.

Pallav Rajan, founder of PMS Bazaar, however, believes that with a difficult exam, the quality of PMS advisory services will improve, which will, in turn, help investors. "By ensuring distributors are well-educated and informed about PMS products, this initiative will empower them to provide superior guidance to high-net-worth investors," he said.

Meanwhile, in order to improve oversight and streamlining operations in the financial sector, the Securities and Exchange Board of India (SEBI) in May made it compulsory for PMS distributors to register with the Association of Portfolio Managers in India (APMI).

The new norms would come into effect from January 1, 2025, and APMI is scheduled to issue the criteria for registration of distributors by July 1, the market regulator had said in a circular early this year.

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