Moneycontrol Pro Panorama | SEBI shines light on PMS returns

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Dear Reader, 

Portfolio Management Schemes (PMS) in India are marketed as the best investment vehicle, where the fund manager gives customised solutions to investors. Even asset management companies that manage mutual fund schemes have launched PMS schemes to cater to high net worth individuals as the minimum ticket size is Rs 50 lakh.

The total assets under management of India’s PMS market stands at Rs 4.89 lakh crore while that managed by fund managers through the Alternative Investment Funds (AIFs) route has touched Rs 6.94 lakh crore. According to PMS Bazaar, which tracks these markets, PMS and AIF assets grew at a staggering 42.5 percent between June and October 2022. They expect assets under these two instruments to grow to Rs 30 lakh crore in the next three years at current growth rates.

While the growth is creditable, it has also caught the eye of market regulator, the Securities and Exchange Board of India (SEBI). Being an opaque instrument, there were cases of over-selling and mis-selling. Unlike mutual funds, where portfolios of all investors are the same, PMS folios are different depending on the market and inflows by the investors.

In such a case, returns of a PMS scheme are difficult to showcase. While the value of a mutual fund scheme can be determined by the net asset value (NAV), that of a PMS scheme is difficult to standardise. Each investor will have a different value as their portfolio is different.

This information is exploited by some schemes for marketing their products. In order to plug this loophole, SEBI has introduced performance benchmarking and categorisation for the PMS industry, akin to the current norms in mutual funds.

The move will help investors assess and compare the performance of service providers. SEBI has asked managers to adopt an additional layer of broadly defined investment strategies categorised as equity, debt, hybrid, and multi-asset. Fund managers will have to tag each investment approach to only one of the strategies.

The regulator has asked the Association of Portfolio Managers in India (APMI) to prescribe a maximum of three benchmarks for each strategy. It has also asked for standardised valuation norms which have to be adopted by taking the help of empanelled valuation agencies.

These are very important steps that have been announced by the regulator that will help transparency in the industry. It will bring down mis-selling of products and help investors make a better choice before investing.

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