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How to Start Portfolio Management Services (PMS) in India?

PMS in India

Portfolio Management Service (PMS) is a professional financial service provided by skilled portfolio managers and stock market professionals. PMS in India manages the portfolio of the investors with the assistance of a research team. Managing equity portfolios in Demat Account can be challenging for the investors. PMS removes the challenge by providing a systematic approach to maximize returns by minimizing the risk factor of investments. It allows investors to make sound decisions backed by extensive research and factual data. PMS also deals with market adversity. PMS in India provide investment portfolio in Stocks, Debt and fixed income managed by portfolio managers.

In India, when an investor invests in PMS, he owns individual securities but not like the mutual fund investor. PMS in India provide flexibility to the investors to customize their portfolio in order to address personal preferences and financial goals. PMS in India can only be provided by entities registered with SEBI (Portfolio Managers) Regulations, 2020[1] as amended from time to time. PMS in India are provided by Portfolio Managers who are body corporate. These body corporate advice, direct or undertake, manage or administer portfolio securities or funds on behalf of the client after entering into a contract with the client. Portfolio managers deal with the portfolios of investors. A portfolio means the total securities held by any person. As per Regulation 23 of SEBI (Portfolio Manager) Regulations of 2020, the Portfolio Managers should not accept any investments from clients which is below Rs. 50 lakh. PMS in India is gaining popularity among High Net-Worth Individuals (HNIs). So let’s understand how to start PMS in India.

Steps to be followed by Portfolio Managers to provide PMS in India

  1. Application for Registration of the Portfolio Managers under SEBI
     To act as a portfolio manager, the body corporate willing to provide PMS has to obtain a certificate of registration from SEBI under the SEBI (Portfolio Managers) Regulations, 2020. An application under Form-A along with a non-refundable application fee of Rs. 1 lakh has to be submitted to SEBI.
  2. Furnishing information and documents
    After applying to SEBI, SEBI may call for information or clarification regarding matters relevant to the activity of portfolio managers or may call the applicant or its principal officer to appear in person before SEBI for personal representation.
  3. Review of Application by SEBI
    After receiving an application for registration, the SEBI considers the application on matters relating to the activities of portfolio management. SEBI reviews and examines the application on the following grounds:
    •  Whether the applicant/portfolio manager is a fit and person.
    • The net worth of the applicant should not be less than Rs. 5 crores.
  4. Accept/ Refuse to Grant Registration
    On being satisfied that the applicant fulfills the requirements as specified in the regulation, SEBI shall send an intimation to the applicant for payment of registration fees. Further, the portfolio managers who are already registered before the commencement of the SEBI (Portfolio Managers) Regulations, 2020 shall be considered as registered. 
    If SEBI is not satisfied with the application, it may reject the application by providing the applicant with a reasonable opportunity to be heard. However, if after hearing the applicant, SEBI is still not satisfied with the application, it may reject the application and communicate it to the applicant within 30 (thirty) days from the date of rejection of the application.
  5. Payment of Registration Fee
    If SEBI is satisfied with the application, it will send an intimation to the portfolio managers to pay the registration fee in the form of a demand draft drawn in favor of the head office of SEBI in Mumbai. In addition to this, the portfolio manager has to pay a sum of Rs. 10 lakh as a registration fee at the time of grant of certificate by SEBI. This fee should be paid within 15 days from the date of grant of registration. Further, to keep the registration in force, the portfolio managers have to pay a fee of Rs. 5 lakh in every three years from the date of grant of registration. The payment of fees can be done by direct bank transfer through NEFT/RTGS/IMPS or online payment using SEBI Payment Gateway or any other mode as may be prescribed.
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Steps to be followed by the investor to avail PMS in India

  1. Opening Demat account for availing of PMS in India
    For availing PMS in India, a separate bank account as well as a Demat account, has to be opened under the ownership of the investor. A demat account short for a dematerialized account is a digital account that holds all securities of the investors. All investments are to be made through the demat account in the name of the investors bu the portfolio manager. The investor grants power of attorney to the portfolio manager who operates the demat account of the investor.
  2. Documents required to open a demat account
    Submission of the following documents is necessary for opening a demat account:
    • PAN card of the investor
    • Photographs
    • Address proof
    • PAN Card and Aadhaar card copy of guardian where the nominee is a minor
    • PAN Card and Aadhaar card copy of the second holder.
    • Bank proof in the form of either a canceled cheque in the name of the account holder or bank statement/ passbook or a canceled cheque given in the name of a proprietary firm along with a letter from the bank with the bank’s stamp.
    • FATCA declaration
    • Copy of the power of attorney in favor of the PMS
    • Demat account opening form
    • Term Sheet.
  3. Minimum Investment in PMS
    As per the SEBI (Portfolio Managers) Regulations, 2020, a PMS account can be opened and held for a minimum amount of Rs. 50 lakh. No funds or securities below Rs. 50 lakh are to be accepted by a portfolio manager from a client. The funds or securities accepted by the portfolio managers should not be invested or managed by the portfolio manager in a manner other than that of the terms of the agreement between the portfolio manager and the client.
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Working of PMS in India

After a portfolio manager has registered itself under SEBI, potential investors having a demat account will approach the portfolio manager to manage their portfolios. To manage the portfolio of an investor/client, the portfolio manager enters into a contract with the investor/client. The portfolio manager will provide PMS to the client in accordance with the SEBI (Portfolio Regulations), 2020 as amended from time to time along with the terms of the contract entered between them.

Portfolio managers provide specialized financial services as each PMS account is unique. The valuation and portfolio of each investor/client differs. Every PMS Scheme has its model portfolio and all the investments are done based on the model portfolio scheme. Even though the investment is based on a model portfolio scheme but the portfolio of every investor is different due to the following reasons:

  • Each investor’s entry time is different.
  • The number of investment varies from investor to investor.
  • Redemption or purchase by an investor.
  • Prevailing market condition. 

Under the PMS scheme, the portfolio managers interact and the frequency of the interaction is directly proportional to the size of the client’s portfolio. If the size of a client’s portfolio is bigger than the frequency of interaction will be more. Usually, the interaction takes place either on a quarterly or half-yearly basis

Types of PMS in India

  1. Discretionary PMS in India
    Under the discretionary PMS, investments are done at the discretion of the fund manager. The client has no intervention in the investment process. However, the client may give the portfolio manager a negative list of stocks at the time of opening the account. The portfolio manager has to ensure that the stocks on the negative list are not bought. A majority of PMS service providers in India offer Discretionary PMS.
  2. Non-discretionary PMS in India
    Under the non-discretionary PMS, the portfolio manager suggests investment ideas and also executes the trade but the choice and timing of investment are solely decided by the investor/client himself.
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In summation, it can be said that portfolio management is the management of a pool of investments that comprises securities such as shares, bonds debentures, and other securities. To effectively provide PMS in India, SEBI (Portfolio Manager) Regulations, 2020 has to be properly followed. This will ensure compliance with reporting standards and proper governance.

Also Read: Portfolio Management Services- A Budding Business

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