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Sebi Hikes PMS Investment Size To Rs 50 Lakh, Tightens Default Disclosure Norms

Base net worth of portfolio managers has also been raised to Rs 5 crore from Rs 2 crore.

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Markets regulator the Securities and Exchange Board of India (Sebi) today increased the minimum investment limit by clients in a portfolio management service (PMS) to Rs 50 lakh from Rs 25 lakh earlier. The regulator also tightened disclosure norms on loan defaults.
The base net worth requirement of portfolio managers has also been raised to Rs 5 crore from Rs 2 crore. The regulator said the portfolio managers now cannot invest more than 25 per cent of their assets under management (AUM) in unlisted securities.

Analysts feel that lately all decisions taken by SEBI has been to strengthen the capital markets by reducing high leveraged trading and creating a conducive environment for small investors and thereby attracting more retail participation.

“By increasing the PMS limit SEBI has made it very clear that a major section of the retail investor should come via the mutual fund route. Customised portfolio management is designated only for HNIs, hence clearly demarcating the customer categories,” said Prakarsh Gagdani, CEO, 

Shorter period for rights issue: It will definitely help companies raise funds in a shorter period.

Ashish Shanker, Head - Investment Advisory, Motilal Oswal Private Wealth Management shared the same view. He said, “SEBI announcement is positive. Moving the investment to Rs 50 lacs will ensure larger net worth clients who have the ability to work with an advisor to evaluate better will come into portfolio management schemes which will ensure serious players remain in the business.”

Since May 2014, when discretionary PMS products, excluding provident fund money, managed roughly Rs 48,000 crore, their assets have grown almost three times to Rs 1.41 lakh crore at the end of June. Though dwarfed by the mutual fund industry’s assets of more than Rs 26 lakh crore, several portfolio managers have mushroomed across the country, raising concerns that many of them might not be following best practices and products are being mis-sold.
PMS products are not as tightly regulated as mutual funds, allowing their asset managers to follow more liberal fund management and selling practices. With Sebi barring mutual funds from offering upfront commissions to distributors and wealth managers on the sale of their products, many brokers are increasingly selling PMS products.

Sebi also tightened the disclosure norms on loan defaults.

Analysts feel that 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 dematerialized 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.

"With disclosures said to be made by listed entities w.r.t the defaults on payments of interest / repayment of principal amount on loans from banks and financial institutions within 24 hours from the 30th day will bring in more transparency in the market place and confidence among investors, especially the retail investors in taking some informed decisions,” said Lav Chaturvedi, ED and CEO, Reliance Securities.

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