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'Sebi decision to increase PMS limit is positive for mutual funds'

Mutual fund participants believe that the recent decisions by Sebi are aimed at strengthening the capital markets by reducing highly-leveraged trading and thereby attracting more retail participation.

, ET Online|
Updated: Nov 21, 2019, 03.04 PM IST
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The Securities and Exchange Board of India’s move to increase the minimum amount required to invest in Portfolio Management Schemes (PMSs) might help mutual funds, say mutual fund participants.

Sebi, in a board meeting on Wednesday, decided to raise the minimum investment amount of clients for PMSs to Rs 50 lakh from Rs 25 lakh. Sebi also increased the net worth requirement of portfolio managers to Rs 5 crore from Rs 2 crore.

“I believe the move is positive for the mutual fund industry. Sebi has increased the threshold for the minimum investments which will lead to more money flowing to the mutual fund industry. Also, the increase in net worth of PMSs will lead to lesser players in that space. I don’t think boutique players can manage to have a Rs 5 crore net worth to begin with. So, we are left with only large managers,” says Radhika Gupta, CEO, Edelweiss Asset Management.

Gupta also says some distributors have been selling PMSs very aggressively and some of the clients might have been better off in a well-regulated mutual fund system. Some other participants also say that the new Sebi regulation will filter the investors in terms of their assets and evaluation. “The SEBI announcement is positive. Moving the investment to Rs 50 lakh will ensure larger net worth clients who have the ability to work with an advisor to evaluate better will come into portfolio management schemes. Increase in net worth will ensure serious players remain in the business,” says Ashish Shanker, Head - Investment Advisory, Motilal Oswal Private Wealth Management.

Through this move, the regulator has made it clear that major section of the retail investor should come through mutual fund route, say participants. Mutual fund participants believe that many investors with large corpuses mistakenly believe that PMSs can generate better returns than mutual funds. “If you look at the mid- to long-term returns, mutual funds and PMSs have generated similar returns. Some investors are lured by this wrong notion. Instead, mutual funds are better regulated,” says Radhika Gupta.

Mutual fund participants believe that the recent decisions by Sebi are aimed at strengthening the capital markets by reducing highly-leveraged trading and thereby attracting more retail participation.

"Sebi decision to increase net worth criteria for PMS is a welcome move which is more to do keeping in mind investors safety and ensure there are serious players in the industry. Second increasing ticket size will ensure only well informed investors will participate in the high risk products offerings, similarly reduction in overall timeline for rights issue to T+31 days is a good move from investors perspective as it increases liquidity. Further, allowing the rights entitlements to be dematerialised and traded on the stock exchange gives a great opportunity for a rights holder to have the same renounce with a better and transparent price discovery mechanism which in today's scenario is totally offline, physical and time consuming," says Lav Chaturvedi, ED and CEO, Reliance Securities.

“From a diversification angle, usually investors limit their exposure to 10-20% of their overall portfolio value in a single PMS product. The increase in investment size to Rs 50 lakh implies that assuming a 20% allocation to individual PMS, only investors with portfolio size of Rs 2.5cr and above will be interested to invest. Current investors in PMS segment, especially with overall portfolio size between the Rs 1cr to 2.5 cr segment may shift towards the mutual fund space,” says Arun Kumar, Head of Research at FundsIndia.com.

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