The Indian Portfolio Management Services (PMS) industry has seen a significant uptick in interest from High Net-worth Individuals (HNIs) and Ultra-High Net-worth Individuals (UHNIs). This surge is driven by the growing number of wealthy individuals seeking personalised investment strategies that align with their specific risk tolerance and wealth creation needs. PMS Funds offers a tailored solution, providing access to a diverse range of equity and debt instruments, and enabling investors to benefit from expert portfolio management.
Over the past decade, the PMS investment industry has experienced robust growth, with Assets Under Management (AUM) expanding at a Compound Annual Growth Rate (CAGR) of 22%. As of September 2024, the AUM reached an impressive Rs 7.43 lakh crore, underscoring the industry’s immense potential.
Recognising the increasing importance of PMS Funds, the Securities and Exchange Board of India (SEBI) has taken proactive steps to enhance investor protection and streamline regulations. One significant initiative is the simplification of PMS distributor regulations. Given the customised nature of PMS India offerings, distributors play a vital role in connecting investors with suitable portfolios. By easing regulatory requirements, SEBI aims to facilitate better access to invest in PMS services and promote greater transparency in the industry.
Another notable regulatory change introduced by SEBI is the enhancement of digital on-boarding processes. This move aligns with the increasing adoption of digital technologies in the financial industry and aims to streamline the client onboarding experience, making it more efficient and convenient for investors. By leveraging digital tools, PMS providers can expedite the onboarding process, reduce paperwork, and enhance overall client satisfaction.
Here is a detailed note.
In May this year, SEBI introduced a significant change in the oversight of PMS distributors by mandating their registration with the Association of Portfolio Managers in India (APMI) effective January 1, 2025. This move centralises distributor oversight at the industry level, simplifying compliance procedures for Portfolio Managers who are now responsible for ensuring their distributors are registered with APMI and adhere to the relevant SEBI regulations and codes of conduct.
By mandating APMI registration, SEBI aims to foster a more efficient and transparent ecosystem to invest in PMS providers. This aligns with the regulatory body’s broader goal of promoting collective oversight of distributors.
Further, this approach mirrors the existing framework in the mutual fund industry, where distributors are required to register with the Association of Mutual Funds in India (AMFI) and obtain an AMFI Registration Number (ARN). APMI is expected to release the specific criteria for distributor registration by July 1, 2025. This move signifies a step towards enhancing the overall regulatory landscape for the PMS India industry and promoting investor protection.
In the same month, another circular from SEBI brought a welcome change to the PMS investment landscape by facilitating digital on-boarding for clients and enhancing transparency in fee structures.
One notable move is the acceptance of typed or electronically written confirmations of understanding fees and charges for clients onboarded digitally, moving away from the previous requirement of handwritten confirmations. This change, effective from October 1, 2024, signifies SEBI’s push towards a more digitally inclusive environment.
Further, SEBI promoted fee transparency by mandating Portfolio Managers to provide clients with a comprehensive fee calculation tool. This tool, covering multi-year scenarios and incorporating the high watermark principle where applicable, aims to provide clients with a clearer understanding of potential fee implications.
Apart from this, the circular mandated the inclusion of detailed fee illustrations in the PMS-client agreement and periodic reports. These illustrations cover various market scenarios, including portfolio value increases, decreases, and stagnation, providing clients with a realistic picture of fee dynamics.
There is also an introduction of a ‘Most Important Terms and Conditions (MITC)’ document. This document, to be provided to and acknowledged by all clients. It summarises critical aspects of the Portfolio Manager-client relationship, promoting clarity and understanding of their mutual rights and obligations.
Takeaway
These recent SEBI circulars represent a concerted effort to streamline the regulatory landscape governing PMS funds, balancing flexibility with robust investor protection measures. These measures will undoubtedly shape the future of PMS India, promoting a more efficient and investor-friendly environment.
Further, as the Indian economy continues to grow and the number of affluent individuals increases, the PMS industry is poised for further expansion. With supportive regulatory measures and increasing investor awareness, the PMS investment sector in India is well-positioned to play a crucial role in meeting the evolving investment needs of high-net-worth individuals in India.
References:
https://cafemutual.com/news/cafe-alt/32039-sebi-makes-digital-on-boarding-of-clients-in-pms-easy
SEBI circulars
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