The Securities and Exchange Board of India (Sebi) on Thursday unveiled a new mutual fund-focused route that sits between conventional mutual funds and portfolio management services (PMS) – PMS-MF – with a lower entry ticket of Rs 25 lakh.
The minimum investment at Rs 25 lakh is half the Rs 50-lakh threshold applicable to conventional PMS. This opens up portfolio management to a wider pool of affluent investors.
Called the Portfolio Managers Route for Investing in Mutual Fund Units (PRIM), the framework will allow portfolio managers to invest clients’ money in direct plans of mutual funds, including index funds and exchange-traded funds (ETFs), as well as specialised investment funds (SIFs) offered by Indian asset management companies.
The framework follows Sebi’s July 23 proposal to introduce a mutual fund-only PMS structure. To make the new route easier to operate, the regulator has lowered the minimum net-worth requirement for portfolio managers offering PRIM to Rs 2 crore and waived exit loads.
Sebi has also prescribed a 25% ceiling on investments in schemes managed by an asset management company affiliated with the portfolio manager, aimed at limiting concentration and potential conflicts of interest.
Portfolio managers offering PRIM can charge a fixed management fee of up to 1% of a client’s assets, while performance-linked fees will also be permitted.
Eligibility requirements for principal officers have also been eased. A graduate, CFA or chartered accountant with at least two years of experience in the securities market can qualify, subject to a simplified NISM certification requirement.
Mutual fund distributors seeking to offer services under PRIM will have to segregate their PRIM activities and clients from their distribution businesses, except in the case of accredited investors.
In another relaxation, Sebi has eased the dealing-room requirement for portfolio managers with assets under management of less than Rs 100 crore.
The regulator has also widened the scope for eligible fund managers (EFMs), allowing certain permitted EFMs to manage and advise eligible funds investing in overseas securities. Where such funds invest in Indian securities, their exposure will be subject to limits under the foreign portfolio investor framework.
Sebi has also introduced the concept of independent fund managers (IFMs), who can manage client portfolios in association with a registered portfolio manager. The registered portfolio manager will retain full responsibility and liability for the IFM’s activities and receive fees directly from clients.
A registered portfolio manager can associate with multiple IFMs, while an IFM can operate under only one registered portfolio manager. Clients will be given an exit option if their IFM leaves or the arrangement is terminated.
Separately, Sebi has widened the investment universe available to conventional PMS. Discretionary portfolio managers will now be permitted, with client consent, to invest up to 10% of client assets in investment-grade, non-convertible unlisted debt securities.
Portfolio managers will also be allowed exposure to exchange-traded derivatives of up to 1.25 times a client’s assets.
Both discretionary and non-discretionary PMS will be permitted to invest in initial public offerings, unlisted debt and a wider range of overseas securities, including listed equities, debt instruments, REITs, mutual funds, ETFs, index funds and foreign government debt.
The changes will also allow portfolio managers to make overseas investments on behalf of clients under the Liberalised Remittance Scheme (LRS), under which resident Indians can remit up to $250,000 abroad in a financial year. Individuals can currently invest overseas through the facility, but portfolio managers have so far been barred from doing so on their behalf.