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In an effort to simplify performance disclosure standards in PMS space, SEBI has introduced new set of rules for PMS players to disclose performance across categories. With this, PMS players will now have to disclose performance of schemes with respect to benchmark in all marketing communication.
The new disclosure norms aim to reduce mis-selling and help investors make informed decisions.
Here are the key highlights of the circular:
- PMS will have to disclose their investment approach (IA). In addition, PMS will have to define the broad strategy it will follow like equity, debt, hybrid or multi cap. Each PMS will have to define only one strategy
- Association of Portfolio Managers in India (APMI) will have to suggest three benchmarks for each strategy which PMS players can use to disclose their comparative performance
- Selection of strategy and benchmark has to be done with rationale
- PMS will have to give exit period to investors before tagging their scheme to a particular strategy or benchmark
- The performance has to be disclosed in time weighted rate of returns (TWRR) which is same as CAGR. The reporting of PMS has to be made in line with chosen benchmark and peer schemes in the similar strategy
- APMI will have to set valuation norms of PMS for debt and money market securities
- PMS will have to submit the monthly performance reports to APMI within 7 working days from the end of each month
- APMI will make this data available on its website with clear segregation across categories
Siddharth Vora, Head of Investment Strategy and Fund Manager, PMS, Prabhudas Lilladher said that the move will increase transparency. He said, “A multi asset or hybrid strategy that is compared to equity benchmarks might grossly outperform in bear market and underperform in a bull market, therefore misrepresenting the strategy performance. Having relevant benchmarks helps in fair evaluation of the strategy. A hybrid fund manager’s true performance can be best observed by comparing it to a hybrid benchmark. SEBI evolving its reporting norms for PMS is a step in the right direction.”