A booming economy and bull run on stock markets in the past four years have led to an upsurge in portfolio management services (PMS). Funds managed by 150 PMS providers, registered with the stock market regulator Securities and Exchange Board of India (Sebi), are now running into thousands of crores of rupees, fund managers say.
There is no publicly available data on the corpus of money managed by PMS schemes even though all such schemes report the details about the funds managed by them to Sebi every month.
Investors in PMS schemes, known in developed markets as ‘managed accounts’, are high-networth individuals with a minimum Sebi-prescribed investment size of Rs5 lakh. However, the threshold limit set by many PMS providers is now much higher. This is on account of rising demand for PMS as well as the fact that there are not many fund managers. The minimum amount required for an investor to join some PMS schemes from Kotak Securities, a domestic brokerage, is Rs1 crore. An investor needs a minimum amount of Rs10 lakh to join any Kotak scheme. For investing in the ‘Value PMS’ by another Mumbai-based brokerage, Motilal Oswal, the minimum amount is Rs50 lakh. Motilal Oswal manages about Rs500 crore in PMS.
Equity Intelligence, an independent financial advisor based in Kochi, Kerala, has more than Rs100 crore under management.
Watching wealth: Investors in PMS schemes are high-networth individuals with a minimum Sebi-prescribed investment size of Rs5 lakh
ICICI Prudential Asset Management, Kotak Securities and ASK Financial Services manage about Rs2,500 crore each in PMS funds. They are the three largest players in this space. Many other leading asset management firms, brokerages and independent financial advisors, too, manage large funds under PMS.
According to Samir Koticha of ASK Financial Services, one of the pioneers of PMS in India, the total PMS fund size in the country could be in the region of Rs25,000-30,000 crore. “In the US, private managed-accounts business is as big as the mutual fund industry. I would say that PMS in India vis-a-vis the US is now where Indian mutual funds were in the 1997-98 period. We would be witnessing big growth in the coming years,” he says.
PMS took off in India only after the bull run started in 2003, even though the facility was in the market since 1993. After Sebi introduced PMS regulations in 1993, most of the early registered PMS providers were commercial banks. But they were ‘non-discretionary’ PMS providers. In other words, they did not have the freedom to invest where they wanted and all investments were done in accordance with the wishes of the investors. This type of PMS is mostly extinct now. Before 1995, it was difficult for an investor to open an account with a broker unless a trusted third party recommended them. So non-discretionary PMS was useful for NRI investors wanting to invest in the Indian stock market.
It is ‘discretionary’ PMS that rules now and the fund managers use their discretion to invest in stocks once money is handed over to them. Modern PMS are based on ‘schemes’ which outline the broad investment objective and risk profile. The specific day-to-day investment decision is then left to PMS fund managers. Some PMS provide a daily electronic report, while others give a monthly report.
Earlier, clients had close interaction with the PMS fund managers. This is less encouraged now, especially for small-ticket clients. With the rising clients base, fund mangers cannnot offer personal attention.
“PMS has come of age now. The awareness has gone up substantially,” says Shashank Khade, senior vice-president and head of PMS at Kotak Securities. “When I registered my PMS with Sebi in 2002, there were only 10-15 players offering active portfolio-management service. The industry now has around 100 players if you exclude PMS registered by banks, which are not active,” says Porinju Veliyath, director, Equity Intelligence, one of the first independent PMS providers. Veliyath, till 1999, ran the PMS operation of Geojit Securities, another domestic brokerage, before branching out on his own.
Some brokerages, such as DSP Merrill Lynch, have chosen not to offer PMS directly, but offer their clients a choice of six-seven external portfolio managers such as HDFC Asset Management Co. or Reliance Asset Management Co. that are otherwise fund managers for their respective mutual funds.
In line with modern marketing trend, PMS too have started branding themselves like mutual fund schemes and offering ‘customized’ choice of various ‘schemes’ to investors. Motilal Oswal offers two schemes—Value PMS and Bulls Eye PMS.
What makes it different from investment in a mutual fund? “For the investors, PMS provides more flexibility and control over their investments and for the PMS providers, less paperwork and public disclosures,” says Satish Menon of Geojit Securities.
According to Khade of Kotak, PMS are much more transparent than mutual funds. Investors can also specify certain stocks that they do not want exposure in.