2020 was quite an eventful for the PMS and the AIF industry. While SEBI introduced direct plans in PMS, it has relaxed some norms in AIF regulations. Let’s take a look at the key events that unfolded in 2020 in PMS and AIF industry.
Upfront commission ban in PMS
Last year, SEBI banned upfront commissions in PMS. In fact, the market regulator directed PMS players to shift to all trail model to compensate their distributors.
Introduction of direct plans in PMS
Just like mutual funds, SEBI directed PMS players to offer direct plans in PMS. With this, PMS players have had to offer an option to investors to invest in PMS without engaging intermediaries.
In direct plan of PMS, investors are expected to do risk profiling on their own, understand terms and conditions, negotiate fees and profit sharing with PMS players and complete all necessary formalities like assigning the power of attorney and so on.
Improved disclosure
Portfolio managers have started furnishing a quarterly report to the clients in which they have to disclose details of commission paid to distributor for the particular client among other things.
Also, PMS and distributors have to ensure that prospective investors are well informed about the fees or commission earned by their distributors before on-boarding them.
Relaxed norms for AIFs to manage offshore funds
The government has relaxed norms for fund managers managing offshore funds. Among some key relaxation are extension of timeline to meet minimum AUM requirement of Rs.100 crore to run offshore from one month to one year, contribution of 5% from Indian residence and so on.
Evaluating performance of AIFs
In an effort to simplify performance disclosure standards in AIF space, SEBI has set new rules for AIF players to disclose performance across AIF categories.
AIFs players are disclosing their performance against their respective benchmark in all marketing communication. SEBI said that the mandatory benchmarking of the performance of AIFs is necessary to reduce mis-selling and help investors make informed decisions.
Moreover, AIFs are providing audited data on cash flows and valuation every six months.
AIF AUM
AIF AUM has grown by nearly 33% to Rs.3.8 lakh crore as on June 2020 from Rs.2.9 lakh crore in June 2019.
Majority of the investments came from Category II funds (77%) that include real estate funds, private equity funds and funds for distressed assets. Category II funds raised commitments worth Rs.2.96 lakh crore as on June 2020 from Rs.2.08 lakh crore in June 2019.
Similarly, the Category III funds that invest in long only and long short strategies saw a growth of 3% in commitment raised. The category raised commitments worth Rs.48,410 crore in June 2020 compared to Rs.47,055 crore in the corresponding period last year.
Introduction of stamp duty tax
Stamp duty is applicable on units of AIFs just like mutual funds, ULIPs and NPS. The government has imposed stamp duty tax of 0.005% on purchase of units of AIFs. This essentially means that AIF players will allot units after deducting stamp duty tax of 0.005% on invested amount.
Further, the market regulator has asked AIFs to appoint registrar and transfer agents (RTAs) to collect stamp duty tax. However, AIFs can keep the collected stamp duty tax in a designated bank account till they appoint RTAs.
Constitution of investment committee
AIFs has started constituting an investment committee to approve investment decisions of fund managers. The committee is responsible for making investment processes & decisions and defining role of fund managers.