The Securities and Exchange Board of India (SEBI) may discuss new regulations for auditors, portfolio management services (PMS) and proxy advisory services at its upcoming board meeting on November 7.
Among the key proposals it is planning for the PMS, the board will consider increasing the minimum investment limit from Rs 25 lakh to Rs 50 lakh and also upping the minimum networth requirement from Rs 2 crore to Rs 5 crore for a company to run a PMS fund, sources told Moneycontrol.
SEBI had hiked the minimum investment limit for PMS funds from Rs 5 lakh to Rs 25 lakh in 2012 while the minimum net worth requirement was last raised from Rs 50 lakh to Rs 2 crore in August 2008.
The increase in the PMS investment limit would be in line with rising incomes and the fact that such products entail higher risk and may not be well suited for retail investors.
PMS funds are alternative funds that can follow riskier investment strategies compared to traditional mutual funds.
“However, SEBI should not interfere too much into fees and expense structure of the PMS businesses. Since PMS products are meant for investors with high risk taking capacity, the commercial arrangement between clients and portfolio managers should not be over-regulated and should be based on mutual agreement with clients and the manager,” Anil Chaudhary, Partner, Finsec Law Advisors told Moneycontrol.
As for the increase in minimum net worth, SEBI feels that the enhancement of this criterion is overdue. “The increase in compliance costs, cost related to information technology and cybersecurity as well as the increase in the minimum number of employees that are needed to run such an operation necessitates a higher investment from the portfolio manager in the business,” said a source.
Further, the higher net worth requirement shall be a deterrent to non-serious players during new applications and will put pressure on fringe players coexisting with serious money managers, the source added.
The PMS fund business has increased significantly over the last decade, with asset under management (AUM) more than doubling from Rs 6.04 lakh crore to Rs 13.7 lakh crore.
Within this, the discretionary fund business, in which investors have a say in the way investments are selected, has grown even faster, growing 5.5 times to Rs 99,825 crore.
SEBI is also planning to increase disclosure requirements by PMS and may increase supervision of distributors of PMS funds.