The industry that serves wealthy clients saw many regulatory changes this year along with a decline in its AUM.
“The year 2019 was indeed a very challenging year for the PMS industry due to weak performance in the mid, small-cap category, strict regulatory changes and volatile market. Until last year, there were not many entry barriers for distributors to enter the PMS market. However, after SEBI doubled the minimum investment amount along with the net worth of portfolio managers, it has become tough for distributors to operate,” said Chandigarh IFA Iqbal Singh of Innovative Financial Management.
Regulatory changes
Last month, SEBI doubled the minimum investment in PMS to Rs.50 lakh from Rs.25 lakh to ensure only large investors enter the market. Experts said that the move would slow down the industry growth, as it would make it difficult for portfolio managers to bring in more investors.
The regulator also increased the net worth criteria for portfolio managers to Rs.5 crore from Rs.2 crore. This could potentially affect the number of portfolio managers.
Among other key regulatory measures were appointment of custodian for record keeping and account handling and restriction in off-market transfers from and to clients’ accounts with certain exceptions
AUM
PMS industry’s AUM excluding EPFO/PF investments fell by 7% until September to Rs.4.40 lakh crore from Rs.4.76 lakh crore at the beginning of this financial year. The decline in the overall assets comes at a time when the regulator has proposed to ban upfront commission and increase the minimum investment amount.
Portfolio returns
Multi-cap PMS delivered the highest return among its other counterparts- large-cap, mid and small-cap in the last 3 years, shows data by PMS AIF. This is because from the top 30 PMSs, 18 were multi-cap, 10 large-cap and 2 mid and small-cap.