A month after SEBI increased the minimum investment limit in Portfolio Management Services (PMS) schemes from Rs 5 lakh to Rs 25 lakh for new investors and fresh investments by existing investors, contrary to expectations, there has been no surge in investors flocking to mutual funds.
Many mutual fund officials said they had witnessed no change in retail investor participation despite the expectation that smaller retail investors who would henceforth find doors closed to PMS schemes would move to mutual funds.
Customer-centric
“There has been no change in terms of investors making a beeline towards mutual funds. We don't think the regulation is going to make any difference to us as this is mainly a customer-centric move implying that PMS is only meant for savvy, sophisticated investors who can understand risks associated with PMS products.
“But for an AMC, this wouldn't make much difference as, even before the new regulation, we had no long queues of either PMS takers or mutual fund takers,” said Mr Sundeep Sikka, CEO, Reliance Capital Asset Management.
Fewer players
“PMS is also a very small segment compared to the broad-based mutual fund industry, so there has hardly been any impact,” added Mr Surajit Misra, National Head, Mutual Fund, Bajaj Capital. However, as a fallout of the regulation, the PMS business is likely to be left with fewer players. This would consolidate the position of the big ticket PMS players, according to industry experts.
According to a research report prepared by Forefront Capital, an estimated 40-50 per cent of the PMS industry assets and client base falls under the Rs 25 lakh investment ticket size category and would be grossly affected.
“Exclusive PMS scheme provider entities may not find it viable to continue as earlier Rs 10 lakh used to be the most popular ticket size,” said Mr Misra.
“In coming times we expect that a lot of fringe players in the PMS industry in the Rs 5 to Rs 10 lakh category to fold-up as they would find it difficult to raise capital.
To affect Renewals
“Several fringe players also might not go in for their licence renewals and get out of business, leaving the industry to bigger players,” said Ms Radhika Gupta, Director, Forefront Capital.
According to SEBI data, the total Assets Under Management (AUM) of the PMS industry excluding AUM under advisory services stood at about Rs 3.88 lakh crore for the month ended January 31 while the total number of PMS investors stood at 73,453.
“The regulation won't make any difference as PMS is anyway a dead product nowadays, at least among small investors. There is a huge trust factor involved in investors entrusting their money with a portfolio manager and recent past mistakes involving certain portfolio managers have eroded that confidence.
Worse news
“With recent advances in technology and financial awareness people are keen to take charge of their investments themselves,” said Mr Ramesh Luharuka of Nariman Point Finance Ltd.
“PMS products usually do well when investors risk appetite improves. A lot of PMS entities have not yet recovered their assets from the 2008 slump and this new regulation coming at the beginning of the year only spells worse news for them,” added Ms Gupta.