The capital markets regulator SEBI (Securities and Exchange Board of India) may soon tighten rules on investments by portfolio management service (PMS) firms in their group entities. Accordingly, there could soon be some new limits after the regulator realized that some new entities invest clients’ money in associate firms, reported “The Economic Times”.
The current policy within Sebi is to cap PMS firms’ investments in all equity and debt securities of related entities put together at 30%. The market regulator is expected to ask portfolio managers to obtain the consent of clients if the money manager wants to invest in related parties, said the associated people cited above.
“The 30% cap being considered is at the group level, that means not more than 30% of clients’ funds can be put together in all related parties,” said one of the persons familiar with the matter, reported ET. “In a single, related-party entity, the PMS manager may not be allowed to invest client’s money by more than 10-15%.”
SEBI has noticed that some PMS firms, especially the ones promoted by non-banking financial services companies (NBFCs) tend to deploy client money in the debt securities of the NBFC or equity offerings of other group companies.
Notably, for wealthy investors PMS is an investment avenue with a minimum investment capability of Rs50 lakh limit. Unlike other investments, structures such as mutual funds or alternative investment funds, the PMS provider doesn’t pool the money but enters into a n agreement with each particular client. The shares purchased by PMS firms on behalf of its client are held in a separate demat account which is owned by the client personally.
Further, Some PMS structures allow the managers to invest a fixed part of the client’s portfolio in debt and unlisted securities as well.
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