Context:
Portfolio Management Services (PMS) in India are regulated by the Securities and Exchange Board of India (SEBI) to ensure transparency, protect investor interests, and maintain the integrity of financial markets. Below is a breakdown of the key rules governing PMS in India.
Key Rules and Regulations
Minimum Investment Requirement:
- â‚ą50 Lakhs Minimum Investment: SEBI mandates a minimum investment of â‚ą50 lakhs in PMS, either in cash or through securities. This requirement is aimed at targeting high-net-worth individuals (HNIs) who are more capable of handling the risks associated with portfolio management.
Portfolio Manager Registration and Compliance:
- Registered Portfolio Managers: Only portfolio managers registered with SEBI are authorized to offer PMS services.
- Net Worth Requirements: Portfolio managers must maintain a minimum net worth of â‚ą5 crores to be eligible to manage PMS accounts.
- Custodian Appointment: If a client’s portfolio exceeds â‚ą500 crores, the portfolio manager must appoint a SEBI-registered custodian to handle the client’s assets.
- Separate Account Maintenance: Portfolio managers are required to maintain each client’s account separately to ensure clarity and prevent potential conflicts of interest.
Agreement and Transparency:
- Formal Agreement: A written agreement between the portfolio manager and the client is mandatory. This agreement should specify the fees, risk factors, scope of services, and other important details of the portfolio management.
- Fee Structure Transparency: The fee structure must be clearly communicated to clients, and they must acknowledge their understanding of the charges before onboarding.
- Client’s Rights and Limitations: The agreement must outline the rights of the client, limitations of the portfolio manager, and scope of services provided.
Other Important Rules
- Upfront Fee Limitations: Upfront fees charged by portfolio managers cannot exceed 25% of the total fees for the duration of the PMS agreement.
- Exit Load: Although PMS services do not have a mandatory lock-in period, they may levy an exit load based on the agreement terms.
- Performance Reporting: Portfolio managers must regularly disclose performance reports, fees, and risk factors to investors.
- Transaction Limits: There are limits on transactions executed through associates of portfolio managers, with charges capped at 20% by value per associate per service.
- Record-Keeping: Portfolio managers must maintain detailed records of investment transactions and recommendations, including the rationale behind each decision.
- Distribution Compliance: Distributors of PMS services must comply with SEBI’s Code of Conduct and register with the Association of Portfolio Management Intermediaries (APMI).
SEBI’s regulations for PMS ensure that portfolio managers operate within a structured and transparent framework, safeguarding investor interests. These rules aim to maintain high standards of integrity, while encouraging responsible growth in the wealth management sector.
