New SEBI Rules for Portfolio Management Services

Smaller investors may now find it difficult to get portfolio management services (PMS), with the market regulator SEBI last week disallowing pooling of resources by the portfolio manager. Most PMS portfolio managers buy the shares in bulk and apportion the same to each investor of the fund in the ratio of the the investment made. The advantage that the PMS manager used to get is the economies of scale wrt to brokerage, opening of Demat accounts and related accounts wrt to operational activities. Now however, SEBI’s directive raises the operational burden for portfolio managers who would now prefer to deal with clients who can invest higher amounts, believe analysts.

Earlier, the portfolio manager would take his call on a particular stock and distribute it on a weighted average basis among his PMS clients. The large PMS operators, especially, will now find it a nightmare, servicing hundreds of clients.

However, with the new guideline, the comfort level of the client is expected to go up; it is also in line with the international practice.

The minimum investment that portfolio managers commonly accept from clients for PMS is Rs 5 lakh. However, many foreign players only deal with clients who invest Rs 50 lakh or more. Therefore, to provide better services, the size of the minimum investment could increase in future.