An investor into Portfolio Management Services (PMS) looking to switch from one asset manager to another has to go through a time-consuming and cumbersome process that typically involves either liquidation of holdings or a share transfer, both requiring opening of a new demat account.
This becomes more hassle some when the portfolio in the red, as the investor is then forced to sell his holdings at a loss before making the switch.
Globally, investors are not required to go into this unnecessary hassle of a new demat account while shifting PMS advisories.
“Platforms like Interactive Brokers and Schwab allow investors to just change their investment advisor on the platform and there is no need to open a new demat account,” Bhavin Shah, Founder and CIO of Sameeksha Capital said, adding that this saves the Indian PMS investors time and effort while changing PMS providers.
The option of liquidating the holdings may seem straightforward, however, if the PMS has been underperforming, then the investor may have to book a loss. In such a scenario, the option of a share transfer is considered, which comes with tedious paperwork and takes around 15 days, Amit Sahita, Director of Fincode Advisory Services told Moneycontrol.
Sahita explained the process, which begins with opening of a new demat account, setting up a Power of Attorney, and completing in-person KYC, after which the investor requests a share transfer. The share holdings are moved from the old depository participant (DP) to the new one, and once transferred, the new PMS reviews the portfolio to decide if stocks will be retained or liquidated.
Volatility in valuations adds another challenge to the process, experts said.
A portfolio worth Rs 50 lakh could drop to Rs 49.75 lakh due to market movement, in which case the investor is asked to top up the account, as regulation governing PMS require a minimum of Rs 50 lakh investment. Delays, or missing signatures and incomplete paperwork only adds to the investor’s hassle.
Inter-depository Transfer
Case an example where PMS A can have a custodian which is a DP of NSDL, and PMS B can have a custodian which is a DP of CDSL. In this case, when an investor in PMS A moves to PMS B, it is called as an inter-depository transfer. Investors in such cases have to provide their PAN number and the PMS registration number at the time of new account set up. At the time of transfer of the securities, PAN holding patterns is verified through depository systems to identify the nature and holders of transactions.
An inter-depository transfer for equities is much easier, but it is very difficult for government securities and can take a longer time, Vivek Vasudevan, CEO and managing director at Agreya Capital said.
If shares transfer involves two different individuals, then it is treated as an off-market transfer which requires the client to pay stamp duty.
"This transfer can be completed either physically or digitally, depending on the DP. But some banks and DPs offer online transfer facilities, while others still require physical Delivery Instruction (DI) slips to be filled out which can be a bit cumbersome," one person told Moneycontrol on the condition of anonymity.
The push for a smoother process for shifting PMSes seems to be lacking, possibly because some key figures in the PMS industry are now shifting focus towards mutual funds, which may indicate that they might not fully focus on easing issues for PMS, people told Moneycontrol.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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