Portfolio Management Scheme (PMS) is a tailor-made investment vehicle typically for High Net worth Individuals (HNIs) and people who want to deploy large capital in equity, debt or in any other asset class. PMS offers investors a range of specialized investment strategies to capitalize on opportunities in the market. The big advantage of such schemes in comparison to mutual funds etc is that they are tailor made to suit the needs of individual clients.
PMS schemes can be of 2 types – Discretionary and Non-discretionary.
By means of PMS (Discretionary Type), a client allows PMS Manager complete discretion to trade/invest on behalf of the client based on his risk profile and more importantly based on the agreement between fund manager and the client with respect to asset classes where investments will be made.
In return, PMS Manager earns a few percentage points of profit made, often in addition to pre-decided fixed management fees (typically 1%-2% of assets under management).
For details of types of common structure See this post – Portfolio Management Schemes (PMS) vs. Mutual Funds – Better Investing Option?
Minimum Ticket Size – Rs. 25,00,000/-
The minimum ticket size for PMS as per SEBI regulations is set at Rs. 25 lakhs. SEBI is constantly working on making investing safer for retail investors. The minimum limit is set at Rs. 25 lakhs to keep retail investors from getting lured into PMS, which is considered to be riskier investment vehicle than Mutual Funds.
Why is There A Minimum Ticket Size?
The premise on which the limit is set is based on an assumption that any investor with Rs. 25 lakhs to invest is well-informed and educated enough to know the risks of investing in PMS. This screens out and diverts retail investors into Mutual Funds, which are specifically designed for low risk investors. who may not understand the fine print of stock markets.
The minimum ticket size limit set by SEBI is a fiercely debated topic among investment managers, mainly on account of its apparent randomness. The idea of setting a larger limit does not serve the purpose of screening out retail investor as much as SEBI may have intended. In reality, many unregistered fund managers get access to a a client’s account (of course with the clients permission) and manage their money. Not only does it reduce registration expense for the fund manager, it also brings down a lot of compliance and of course – the minimum ticket size. Having said that, this will give the fund manager a lesser legal recourse in case of a dispute. Many investors with deployable funds far exceeding Rs. 25 lakhs, who may or may not know the risks associated with PMS, are in fact involved with PMS services.
There has been some talk that the PMS limit is set to increase to Rs. 1,00,00,000 mark. The existing limit of Rs. 25 lakhs was raised from Rs. 5 lakhs by SEBI following the aftermath study of market crash of ’08 as PMS clients sweated out a lot of money.
Authored by Abhimanyu Hans