Sebi hikes PMS investment size to Rs 50 lakh, tightens default disclosure norms

Mumbai/New Delhi: Markets regulator the Securities and Exchange Board of India (Sebi) on Wednesday increased minimum investment limit by clients in a portfolio management service (PMS) to Rs 50 lakh from Rs 25 lakh earlier. The regulator also tightened disclosure norms on loan defaults.

Base net worth requirement of portfolio managers has also been raised to Rs 5 crore from Rs 2 crore.

The regulator said the portfolio managers now cannot invest more than 25 per cent of their assets under management (AUM) in unlisted securities.

Market participants were of the view that the move will restrict the growth of PMS industry.

“The increase in investment limit and net worth 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 ₹50 lakh,” said Anish Teli, founder of IndexAlpha.

“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 cost," he added.

Existing portfolio managers have to meet the enhanced requirement within 36 months, Sebi said.

Others shared the view.

“Hiking the investment limit for PMS from Rs 25 lakh to Rs 50 lakh 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.

Since May 2014, when discretionary PMS products, excluding provident fund money, managed roughly Rs 48,000 crore, their assets have grown almost three times to Rs 1.41 lakh crore at the end of June. Though dwarfed by the mutual fund industry’s assets of more than Rs 26 lakh crore, several portfolio managers have mushroomed across the country, raising concerns that many of them might not be following best practices and products are being mis-sold.

PMS products are not as tightly regulated as mutual funds, allowing their asset managers to follow more liberal fund management and selling practices. With Sebi barring mutual funds from offering upfront commissions to distributors and wealth managers on the sale of their products, many brokers are increasingly selling PMS products.

Sebi also tightened the disclosure norms on loan defaults.

In order to address the gaps in availability of information with respect to defaults, Sebi decided that in case of any default in repayment of principal or interest on loans from banks and financial institutions which continues beyond 30 days from pre-agreed payment date, listed entities will disclose such default, within 24 hours from the 30th day of such default.

These provisions will be applicable from January 1.

“The philosophy is that more and more information should be in public domain, which guide investors and stakeholders as to what is happening,” Sebi Chairman Ajay Tyagi told reporters after the board meeting.

“It is an attempt to go for better disclosures in the public domain,” Tyagi also.

The Sebi board in a meeting in Mumbai also approved the reduction in timeline for completion of rights issue to T+31 days from T+55 days.

Sebi also introduced dematerialised rights entitlements (REs) and trading of REs on stock exchanges.

Sebi rules require that top 500 listed entities based on market capitalisation shall include Business Responsibility Reporting as part of annual reports. Such applicability is now extended to top 1,000 listed entities

On the recent NSE glitches, Tyagi express his concerns.

“We will call them. This should not happen,” said Tyagi.

Sebi said it will examine if the period of NSE’s ban on raising funds from capital markets is over.

“We are examining whether the six month period (of ban from raising money from capital markets) is over or not, because they had challenged some parts of the order,” Tyagi said.

On whistleblower complaints, Tyagi said the companies should follow their standard operating procedure.

“If it is material , the company has to disclose it. If they don’t, we will take action,” said Tyagi adding that one cannot really define what is material.