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In India, Portfolio Management System is regulated by the SEBI (Portfolio Managers) Regulations, 1993. Due to the investment restrictions on mutual funds imposed by SEBI, High net-worth individuals generally invest via PMS. The products of the Portfolio Management System have always suffered from a lack of standardization, Reporting format, and lack of transparency and other charges levied. The working group of SEBI has proposed PMS regulations on the PMS distributor. The primary objective of the recommendation is to eliminate the effect of extraneous events like deposits and withdrawals. Further, the reporting frequency has changed from every six months to three months.
Portfolio Management is an act of creating an investment account and maintaining the same. The goal is to maximize the investment’s expected return of the individual.
The key factors of Portfolio Management are-
In discretionary, the fund manager makes investment decisions on behalf of the investor.
The fund manager suggests investment ideas, while the decision is taken by the client.
SEBI’S working group observed that different Portfolio Management System managers are adopting different ways to report their performance. To exclude the effect of extraneous events like deposits and withdrawals, the working group recommended that the time-weighted-return method must be adopted by all the managers to maintain consistency and uniformity. Further, the frequency of reporting by the managers to the clients IS increased from every 6 months to every 3 months.
In contrast, the net asset value of mutual funds to be declared on all business days. In addition to it any changes in investment approach or any change in the Principal Officer of the Portfolio Management System should also be reported to the clients. Any change in the system or any update what is reported to the SEBI should be properly mentioned on the website. Any update or changes in the system that the PMS Manager, they should mention it properly on the website.
The Portfolio Management System manager is allowed only to invest in listed securities. Also, now unlisted securities are permitted. In case of investment in mutual funds, the working group proposed that it should only be allowed to invest in direct plans of mutual funds. PMS services are offered by the wealth manager investing in regular plans and these may have to be restructured.
Suggested Read: Difference Between PMS and AIF