The Securities and Exchange Board of India (SEBI) has increased the minimum ticket size for investors who want to avail portfolio management services (PMS) to Rs 50 lakh from the current Rs 25 lakh. It has also changed the net-worth criteria for portfolio managers to be registered with it to Rs 5 crore instead of Rs 2 crore.
The move will slow down the robust 18 per cent CAGR growth seen by the PMS industry between January 2014 and January 2019 as the pie of potential investors will reduce. But it will also ensure that only high networth individuals who are well-informed, participate in the high-risk product offerings as they can also better evaluate the outcomes of their investment decisions.
More importantly, the move will push customers under the Rs 50 lakh investment bracket towards mutual funds, giving a fillip to that industry segment. The increase in net worth requirement to Rs 5 crore will limit the number of businesses that offer portfolio management, thus ensuring that serious players remain in the business and investor interest is protected.
For businesses, which do not meet the Rs 5 crore networth condition, the other option is to register as Research Analysts (RAs) or as Registered Investment Advisors (RIAs). These licences have a lower net-worth requirement.
The SEBI directive will lead to many investment professionals moving away from PMS and applying for other licences. They can then create ready-made portfolios for clients, which will also benefit those looking to invest under Rs 50 lakh. In all, the SEBI directives will give a boost to a newer class of advisors as well as investors.