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New to PMS? Everything about how to open a PMS account

The process of opening a PMS account is not easy. You need to sign many documents, many of which are 40-80 pages long. Also, a designated demat account, where your PMS provider can buy and sell securities on your behalf, needs to be opened.

August 16, 2022 / 11:08 AM IST

Portfolio management services (PMS) can be used by high net worth individuals (HNIs) seeking higher returns. To ensure that only investors with high risk-taking capacity have access to PMS, market regulator Securities and Exchange Board of India (SEBI) has doubled the minimum investment size from Rs 25 lakh to Rs 50 lakh in 2019.

Unlike mutual funds (MFs), where account opening is easy since it's digital, the process in PMS requires several physical signatures across large forms. While the industry is trying to make changes and make the process digital, there is still some way to go.

Here is a look at the process of PMS account opening.

Where can you buy a PMS scheme?

While SEBI has made it mandatory for PMS providers to offer direct plans, it is better for investors to buy them from wealth management firms or distributors, with a credible track record.

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Unlike in MFs, where it is relatively easier to assess the track record of a scheme as it is a pooled investment vehicle, in PMS, each client will have a different outcome.

PMS is not a pooled account. It manages the portfolio of each client separately, depending upon the investment strategy they opt for.

Also, there are 378 PMS providers, each with their own investment style and team of fund managers. This may further complicate matters for an investor when looking to pick a PMS. You would also need to agree to the terms and conditions with the PMS provider on profit-sharing, hurdle rate, etc.

Also read: How to read PMS disclosures on return and performance

Unless you have a strong conviction on the PMS provider, it is better to go through an advisor when looking for a suitable PMS.

What is the current industry practice?

When you open a PMS account, you also need to open a demat account. As per regulations, the securities are to be held only in the customer’s account. It cannot be held by the portfolio manager.

When you want to invest in a PMS, two agreements are required. One is your agreement with the PMS provider, like fee-related schedules, and know-your- customer (KYC) papers, etc. Typically, a PMS document is 40-80 pages long. Then, there is the power-of-attorney (POA) agreement. You also need to separately fill up the demat account opening form.

There are six major players in the PMS industry that serve as custodians and offer demat services. These are ICICI Bank, Kotak Bank, HDFC Bank, Axis Bank, Edelweiss and Orbis. As per regulations, all the cash and securities are required to be held with a custodian.

The entire account opening process can take 3-5 days, while some PMS providers can even take as many as 30 days to get your PMS up and running.

What if you already have a demat account?

You still need to open another account, specifically for the PMS scheme. Your PMS fund manager needs to access this demat account, for which he makes you sign a POA to be able to buy and sell stocks on your behalf.

Can the PMS account opening process be shortened?

The PMS industry is slowly moving towards digitising the account-opening process. The Mumbai-based startup, 1Silver Bullet, in January 2022, launched a digital platform where investors can open PMS accounts. The platform has, so far, 37 PMS providers and has mobilised investments worth Rs 5,000 crore.

“We have managed to reduce the account opening time to one-two days,” says Milan Ganatra, founder of 1Silver Bullet.

As of now, the platform only allows distributors to initiate the account opening process digitally. Investor’s basic details are automatically captured through her/his KYC. The distributor would then check if any additional information or document needs to be uploaded. An e-verification link is sent to the investor, which she can e-sign through her Aadhaar number.

However, papers like POA still need to be physically signed as it is among the documents that requires physical signatures, legally.

Ganatra adds that 1Silver Bullet is working with fintechs and plans to launch a platform where investors can directly buy PMS. For now, 1Silver Bullet has enabled systematic investment plans (SIPs) in PMS, which distributors can register on behalf of investors.

“The minimum SIP requirement ranges from Rs 2 lakh-Rs 5 lakh, depending upon the PMS provider,” says Ganatra.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Aug 11, 2022 10:31 am
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