INTRODUCTION

This article provides a look at the Portfolio Management Service (PMS) and the SEBI registration process. Gain a comprehensive understanding of PMS and the regulatory requirements for offering PMS in India.

WHAT IS PMS?

Portfolio Management Service (PMS) is a professional service offered by financial institutions to manage the investments of high-net-worth individuals. It involves creating and managing investment portfolios tailored to clients’ specific needs.  

KEY FEATURES OF PMS

PMS offers customized investment strategies, professional portfolio management, and transparency in investment decisions. Clients benefit from personalized investment advice and regular portfolio updates.

SEBI REGULATIONS

• SEBI regulates the PMS industry to ensure investor protection and market integrity. Understanding the SEBI regulations is crucial for offering PMS services and maintaining compliance.

• PMS industry is regulated under SEBI (PMS) Regulations, 2020

• The services of a Portfolio Manager are governed by the agreement between the portfolio manager and the investor. The agreement should cover the minimum details as specified in the SEBI Portfolio Manager Regulations.

• Additional terms can be specified by the Portfolio Manager in the agreement with the client. However, the additional terms should be in contravention of the clauses of the SEBI PMS Regulation.

TYPES OF SERVICES OFFERED BY PMS IN INDIA

• Discretionary Services:

Under the discretionary PMS, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager and the Portfolio Manager can exercise any degree of discretion in the investments or management of assets of the Client. This right of the Portfolio Manager shall be exercised strictly by the Applicable Laws.

• Non – Discretionary Services:

Under the non-discretionary PMS, the Client has complete discretion to decide on the investment. The Portfolio Manager, inter alia, manages transaction execution, accounting, recording or corporate benefits, valuation and reporting aspects on behalf of the Client. Under the non-discretionary portfolio management service, the portfolio manager manages the funds under the directions of the client.

• Advisory Services:

The Portfolio Manager shall be solely acting as an advisor to the Client Portfolio and shall not be responsible for the investment/divestment of Securities and/ or any administrative activities on the Client Portfolio. The Portfolio Manager shall provide advisory services under such guidelines and/or directives issued by the regulatory authorities and/ or the Client, from time to time, in this regard.

FEES CHARGED FOR PMS SERVICES

SECURITIES ALLOWED FOR INVESTMENT

• Under Discretionary Portfolio Management Service (DPMS), Portfolio Managers shall invest funds of his clients in the securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through direct plan and other securities as specified by Board from time to time.
• Under Non-Discretionary Portfolio Management Service (NDPMS), Portfolio Managers may invest up to 25% of the AUM of a client in unlisted securities, in addition to the securities permitted for discretionary portfolio management.
• “Unlisted securities” for investment by Portfolio Managers shall include units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, etc. which are not listed on any recognized stock exchanges in India.

LIMITATIONS AND CONDITIONS APPLICABLE TO PMS

• Minimum portfolio under management should be INR 50 Lakhs in terms of securities or funds
• Charges for all transactions in a financial year (Broking, Demat, custody etc.) through self or associates shall be capped at 20% by value per associate (including self) per service. Such limits shall apply separately for demat services, custodian services etc.
• The portfolio manager shall furnish periodically a report to the client, as per the agreement, but not exceeding a period of three months. The report should contain details as prescribed under PMS Regulation.
• Cannot impose a lock-in on the investment of their clients. However, a portfolio manager can charge applicable exit fees from the client for early exit. The PMS Regulation prescribes the limits for exit fees.
• Cannot offer indicative or guaranteed returns to the clients.
• The performance of a discretionary portfolio manager is calculated using the time-weighted rate of return (TWRR) method for the immediately preceding three years or period of operation, whichever is lesser.
• Disclosure Document to be provided prior to entering into an agreement with the client.
• Partial withdrawal from the portfolio by the clients should not result in portfolio value falling below INR 50 Lakhs.

SEBI REGISTRATION

 

ELIGIBILITY CRITERIA

• A body corporate- LLP / Company. Individuals not allowed to apply
• Memorandum of Association/ Partnership deed having object clause concerning Portfolio Management Activities
• Net worth – INR 5 Crores.
• Resource requirement- Minimum three persons under the employment of PMS applicant for PMS activity
  • Principal officer with requisite qualification (Post Graduate or Professional) and experience (5 Years in the securities market out of which minimum 2 in investment advisory or fund management)
  • Compliance Officer- No eligibility criteria prescribed by SEBI
  • One more employee requisite qualification (Graduate) and experience (minimum 2 in areas related to portfolio management or stockbroking or investment adviser or fund manager)
• Infrastructure requirement
• Dealing Room and a separate Office Space for all other purposes
• Office Equipment, Furniture and Fixtures, Communication Facilities, Data Processing Capacity,  Hardware and software etc

 

REJECTION OF THE APPLICATION

Matter of concern that might lead to rejection of the Application:

• Non-fulfillment or discrepancy in fulfillment of any of the eligibility criteria
• Any disciplinary action has been taken by the Board against a person directly or indirectly connected with the applicant
• The applicant is not fulfilling the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008
• The applicant, its director or partner, principal officer, compliance officer or the employee-
• involved in any litigation connected with the securities market that has an adverse bearing on the business of the applicant;
• has at any time been convicted for any offense involving moral turpitude or has been found guilty of any economic offense.

 

REGISTRATION PROCESS

• Pre-application preparation- Document segregation and drafting
• Sign up on SiPortal (www.siporatal.sebi.gov.in)- Payment of application fee of INR 1 Lacs plus GST
• Application filing (Form A- format available in SEBI PMS regulation)
• Filing of responses to queries or observations raised by SEBI
• Physical inspection visit by SEBI officials
• Approval of application by SEBI on fulfillment of eligibility criteria and receipt of satisfactory response.
• Payment of Registration fee of INR 10 Lacs plus GST
• Receipt of PMS registration certificate

 

REGISTRATION CHECKLIST

1. Basic details and constitutional documents of the Applicant- COI, MOA, AOA, Shareholding, Board Resolution etc

2. NISM XXI B certificate of Principal Officer

3. Grievance Redressal process

4. Undertaking and declarations

5. Disclosure Document

6. PMS agreement

7. Bankers report

8. Business Plan

9. Risk Profiling process

10. KYC, qualification, and experience documents of all the applicant and concerned persons i.e. directors/ partners, Promotors, KMP, Principal Officer, Compliance Officer etc

11. Net Worth certificate by CA

12. Audited Financial Statement last 3 Years

13. Business Continuity and disaster recovery plan

14. List of brokers

15. Intent letter from Custodian along with custodian details

POST-REGISTRATION- CONDITION OF REGISTRATION

PMS shall

• abide by the provisions of all the applicable Acts, Regulations and circulars;
• obtain prior approval of the Board in case of change in control;
• inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted;
• pay the fees for registration
• shall take adequate steps for redressal of grievances of the investors within twenty-one calendar days of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received;
• maintain the net worth specified in regulation 9 at all times during the period of the certificate.

 

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Disclaimer: The views and opinions expressed herein are my personal views and opinions and do not necessarily reflect the official policy and position of any other agency, organization, employer or company. Assumptions made in the analysis are not of the position of any entity other than me. I make no representations as to accuracy, completeness, correctness, suitability or validity of any information and will not be liable for any errors, omissions or damages arising from its use. It is reader’s responsibility to verify their own facts.

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