If an organization wants to become a portfolio management service provider, the first and foremost step is to register with the Securities and Exchange Board Of India (SEBI). Today we will provide you all the information regarding PMS SEBI.
Before jumping directly onto PMS SEBI, we would like to brief you about SEBI and PMS.
SEBI supervises the activities being performed in the stock market, and it works in a way to ensure that no fraudulent activities happen in the market, and all the PMS service providers are working wisely and fairly.
SEBI was established in the year 1988, the market regulator, to establish rules and regulations to be followed in the stock market. It keeps an eye on the daily activities taking place in the stock market.
The current Chairman of SEBI is Mr. Ajay Tyagi, who was appointed on 10th Jan 2017.
At the stock market regulator, SEBI’s main motive is to make the market free from frauds, bring transparency, and create a good environment for the investors.
If any fraud or malpractices occurs in the market, then SEBI intervenes and takes strict judicial actions against the offender.
Portfolio Management Services (PMS) are the services that will manage the capital invested by the investors. A portfolio manager is hired for this position; they keep track of all the essential activities to meet the client’s financial goals.
The portfolio manager’s main objective is to give good returns to the investors on the amount invested by them.
Want to know everything about PMS? Then read PMS Review and clear all of your doubts.
As now you have got a brief about PMS Features and SEBI, let’s move forward to other important topics related to PMS SEBI. So let’s start with the PMS SEBI regulations.
As being a regulatory body, SEBI focuses on the fraud-free environment for the investors. To make it more clear, SEBI has introduced a few rules that are to be followed by everybody linked with the stock market.
Here are a few regulations formed by the SEBI
As per the new regulation, SEBI has introduced the minimum capital investment in PMS registration cannot be less than ₹ 50 lakh, which was earlier ₹ 25 lakh.
Once the investor selects the service provider, the agreement is to be made between them, and in that document, all details are mentioned with regard to all the PMS Charges.
It is required to furnish the investor with the proper performance report every 3 months or whenever asked by the investor.
Earlier the minimum net worth was ₹ 2 cr for the portfolio managers, which has been expanded to ₹ 5 cr.
The portfolio manager will charge an agreed amount from an investor without ensuring any return, but no upfront fee should be charged.
As per the SEBI new regulations, the minimum investment is ₹ 50 lakh for the investors to avail Portfolio Management Services. Earlier, it was ₹ 25 lakh.
The new regulation directed by SEBI has doubled the capital investment for getting PMS services. The minimum net worth has also been increased to ₹ 5 crores as earlier it was ₹ 2 crores.
Based on market capitalization, the top 1000 listed bodies must provide Business Responsibility Reporting (BRR) as a part of their annual reports.
The new regulation has also brought changes in discretionary as well as in non-discretionary PMS.
Discretionary PMS is now restricted to invest only in listed securities, whereas non-discretionary PMS can contribute to unlisted securities as well, but the regulatory has set a limit up to 25% of their AUM (Asset Under Management).
PMS SEBI Registration
To form a Portfolio Management Services company under the Securities Exchange Board of India (SEBI), the organization must follow a procedure to become a SEBI registered PMS company.
First of all, to get registered with SEBI, it is mandatory to pay ₹ 1 Lakh as an application fee, and the fee paid by an applicant is non-refundable.
The SEBI has raised the applicant’s net worth from ₹2crores to ₹5crores, and when the SEBI provides the registration certificate to the applicant, at that time, he needs to pay ₹10 lakh as registration fees.
The validity of the certificate provided by SEBI to the applicant is 3 years; for the renewal of the certificate, the applicant should request 3 months before the expiry date.
To continue being a registered applicant of SEBI, he needs to pay 5 lakh as a renewal registration fee.
A written agreement between an investor and the portfolio manager providing all the PMS details regarding the charges to be taken by the portfolio manager and the investor’s financial objectives are mentioned in that contract.
PMS SEBI Guidelines
To have a transparent environment in the industry, the portfolio manager has to follow the SEBI guidelines. The guidelines are listed below:
Charges and Fees: The portfolio manager cannot ask any upfront fees directly or indirectly from the client. Clients need to pay an expense as brokerage.
Excluding brokerage, the operating expense should not exceed 0.50% per annum of clients’ regular AUM.
Direct onboarding: No intermediary should be involved, and the client should be provided with an option to select direct on-boarding by the service provider.
The option for direct onboarding should be disclosed on the disclosure document as well as on the website of the portfolio management service provider.
Only statutory charges should be levied at the time of direct on-boarding of clients.
Investment Approach: The information regarding investment approaches provided by portfolio managers should be consistent. The information must include;
Objective of Investment
Comparison between the selected and the reached benchmark.
Investment approach related to risk.
Basis of a selection of the securities
Performance Report: While making a performance report, the money utilized in investment should be considered along with all the charges, fees, taxes included, are included to make a report.
If the performance of investments can be impacted by a change in the market, it should be mentioned in the report.
SEBI PMS Disclosure Document
A disclosure document is a document in which all the necessary details are provided to the client by the service provided.
In regulation 14(2)(d) of the PMS regulations 1993, before the circulation of the disclosure document to any person or client, the portfolio manager has to file a copy of that document to SEBI, and if any material change occurs within 6 months, that also has to be noted in the document.
The regulation 2020, if any material change takes place, then the portfolio manager has to file a disclosure document with SEBI after giving the registration certificate and before circulating it to any client.
The portfolio manager has to make the changes in the disclosure document within the 7 working days. The services provided to the clients will be changed correspondingly.
PMS Limit by SEBI
The SEBI has doubled the minimum amount of investment by an investor in its new guidelines, i.e., from ₹ 25 Lakhto ₹ 50 lakh.
Excluding the provident fund, the asset managed by discretionary PMS increased three times to ₹ 1.41 lakh crore by the end of June 2019 against ₹48,000 crores in May 2014.
The portfolio management services have to pay ₹1 lakh as an application fee to get registered with SEBI.
Suppose there is any material change, provided by the SEBI guidelines. In that case, the new regulation 2020 portfolio manager has to write it in a disclosure document within 7 working days, and the services provided to the clients will be updated accordingly.
We have tried to provide you the information related to PMS SEBI; we hope the information provided to you has helped you in clearing doubt in regard to PMS SEBI. If you have any queries, you can comment below.
In case you are looking to use Portfolio Management Services, let us assist you in taking the next steps forward. Just fill in some basic details in the form below: