Is it correct that SEBI is planning to tighten the regulatory norms for portfolio management services (PMS) in India?

You are absolutely right that SEBI is considering a number of proposals to tighten the regulatory mechanism for PMS schemes. Currently, these schemes manage close to Rs.15 lakh crore and these investors are predominantly HNIs. However, the corpus is quite large and is twice the size of the entire equity mutual fund segment in India. SEBI felt that for a segment of such size PMS was not full regulated. Some of the highlights of the proposal are as under.

· The regulator has sharply increased the net worth requirement for these PMS schemes from Rs. 2crore to Rs.5 crore making their capital base more robust.

· SEBI is also seriously looking to increase the minimum investment corpus for PMS from Rs25 lakhs to Rs.50 lakhs. This will ensure that only the genuine HNIs come in and retail and semi retail investors are kept out of PMS to avoid exposing them to undue risk.

· An important change that SEBI is currently contemplating is the standardization of computation of returns. Currently, PMS providers give different time periods and use different logic. Once it is standardized, comparison across schemes becomes a lot simpler.

· SEBI is also planning to regulate and reduce the fees charged by the PMS as well as the steep exit loads that re charged by prescribing an upper limit.

· There is also an important recommendation pertaining to commission paid to distributors. SEBI is planning to scrap upfront commissions entirely and replace that with trail commission subject to the funds staying in the PMS for a longer period of time. This is expected to reduce the mis-selling of such PMS schemes.