Private equity investments are classified in a wide category of (AIFs) Alternative Investment F...
PMS and AIF Before the introduction of SEBI (Alternative Investment Funds) Regulations 2012 (“AIF Regulations”), there were no explicit rules or laws regulating the pooled investments. SEBI issued a circular on 10th February 2012 effecting SEBI (Portfolio Managers) Regulations 1993(“PM Regulations”) to restrict them to pool their investor’s funds. This was done with an objective to pave the way for introduction and implementation of AIF Regulations. These AIF Regulations were introduced with a view to regularizing the market of pooled investments, and covered such funds under the legal ambit and mandated registration under SEBI for all such funds.
PMS and AIF In the current economy, investors are getting more aware of diverse investment options and habit of wealth management are fast gaining the fancy of investors of every size. Currently, three most popular wealth management routes are mutual funds, portfolio management services (PMS), and AIFs. Out of these three PMS and AIF are the ones which require higher minimum investments, entail higher risk factors and have the probability of higher returns. This is the reason large and wealthy investors prefer them.
However, PMS and AIF there are many points of difference between Portfolio Management Services and Alternative Investment Funds like AIF offers a wide bouquet of investments while on the other hand PMS is majorly focused on listed securities. For example, close-ended AIF units can be listed after the final close of the scheme or the fund and on the other hand portfolio is a set of securities they don’t represent form any unique instrument which can be listed.
They differ on a number of points including registration, regulation, capital requirement, categories, investors, investment guideline etc.
|Regulation||They are regulated by SEBI (Portfolio Managers) Regulations 1993||They are regulated by SEBI (Alternative Investment Funds) Regulations 2012.|
|Fees||Apart from the nonrefundable application fee of Rs. 1, 00,000 the applicant is required to pay a registration fee of Rs. 10, 00, 000 at the time of grant of a certificate of registration.||Apart from the nonrefundable application fee of Rs. 1, 00,000 the applicant is required to pay the registration fee at the time of grant of a certificate of registration.|
The amount of this registration will vary depending upon the category of AIF.
Category I – Rs. 5,00,000
Category II – Rs. 10,00,000
Category III– Rs. 15,00,000
|The validity of Registration||The registration is valid for three years. And the registration is required to be renewed at least 3 months before its expiry.||Registration will remain valid until the AIF is wound-up.|
|Types||PMS can provide two types of services:|
– Discretionary or
|AIF registration can be done in any of the following 3 categories depending upon their investment objectives:|
– Category I
– Category II
– Category III
|Number of Investors||No threshold limit is prescribed. Portfolio Manager can have any number of clients.||No of investors for every scheme or fund shall not exceed one thousand.|
|Polling of funds||No pooling of investor funds is allowed. A separate portfolio of every client is to be maintained.||Pooling of funds is the main essence of this kind of investment model.|
|Segregation of Funds||Under PMS model funds of every client is segregated and kept in different demat accounts.||NO segregation is required to be done.|
|Minimum Investment Limit||Every investor is required to make a minimum investment of Rs. 25, 00,000.||Every investor is required to make a minimum investment of Rs. 1 Crore.|
|Corpus Requirement||NO corpus requirement in case of PMS.||Each scheme is required to have a corpus of Rs. 20 crores. In case of Angel Funds, the requirement is Rs. 10 Crore.|
|Sponsor/Manager Contribution||No such provision under PMS.||Sponsor/Manager are required to have some continuing interest in AIF.|
In case of Category I and II AIFs, it should be 2.5% of corpus or 5 Crore rupees whichever is less.
Category III AIFs, it should be 5% of corpus or 10 Crore rupees whichever is less.
|Listing||As portfolios don’t represent a separate instrument, they cannot be listed.||Close-ended units can be listed after the closure of such units.|
|Lock-in period||Here, an investor can withdraw at their discretion in a manner specified under the agreement.||Close-ended units can have prescribed lock-in period.|
|Tenure of Securities||No minimum time is prescribed. Investment in the portfolio is governed by the agreement executed between the portfolio manager and its client.||Minimum tenure of Category I and II AIF fund or schemes will be 3 years and can be extended for a period of 2 years.|
PMS and AIF There are many differences in the structure of PMC and AIF. But, with an increase in investor interest in these areas SEBI is planning to align the services provide by Portfolio Managers with AIFs. As both these investment models involve a great deal of risk along with the possibility of high returns, the authorities are planning to make them more inaccessible to small and medium level investors. In 20003 the minimum investment limit for PMS was raised from 5 lakhs to 25 lakhs. Now, it is believed that the Board might increase this limit up to Rupees one crore and place both these models on the same level.