 
Prashant
Jain ANOOP
BHASKER RITESH
JAIN |
PMS for mutual benefit Shobhana Subramanian Mutual
fund companies are increasing focus on Portfolio Management Services
to march ahead of stock brokers and banks With the equity markets on a roll, it’s not surprising that everyone wants to dabble in stocks. If that’s not showing up in the amounts being collected by mutual funds, it’s probably because a good part of retail investments in equities is being channeled into the markets through Portfolio Management Schemes (PMS). According to rough estimates, at least Rs 15,000- 20,000 crore has been parked in such schemes what with at least a hundred brokerages fashioning schemes. What’s more, investors seem to have got what they’re looking for because the corpus managed by these portfolio managers is growing fast. Not wanting to lose out on the opportunity, those asset management companies, which haven’t already jumped into the fray, are hurrying to do so. The Chennai-based Sundaram BNP-Paribas for instance, has just bagged a licence while ABN Amro Asset Management launched its PMS product in end-September. Others like SBI Mutual Fund and ING Vysya have completed a soft launch and are fine-tuning the products. Prudential ICICI, of course, has been in the game for about six years now, while Birla Sunlife started out about four years back. Says Deepak Chawla, CEO, SBI Mutual Fund, “PMS is a natural choice for any mutual fund because we have the investment expertise for both debt and equities. So we are in a position to handle portfolios whether for individuals, trusts, corporates, electricity boards and in due course insurance. We have just made a beginning but we now have the infrastructure in place and plan to grow the business.” Adds Nikhil Johri, Managing Director, ABN AMC, “We are basically asset managers and so will venture into any area where we can manage money and see an opportunity. In terms of an image, it shouldn’t matter to investors whether we’re an asset management company with mutual fund schemes. We wouldn’t be too concerned about that. Also the channels through which we will be selling the PMS service are very different from those through which we sell our mutual fund products.” Observes Vikaas M Sachdeva, Country Head, Business Development, ING Vysya MF, which launched its PMS service in January this year, and is readying a new product to be unveiled in a couple of months. “There is a section of people who want to invest directly but want professional help to do so. And we believe we can help them.” It’s not hard to see why PMS schemes are becoming increasingly popular. To begin with they can be tailored according to the clients’ needs. Says Rajeev Thakkar, Director, Parag Parikh, which has 200-strong clientele and manages around Rs 100 crore, “ The portfolio can be designed exactly the way the client wants. Also, the minimum amount we ask for is Rs 5 lakh and there is no lock-in period, nor is there an exit load. For customers who are looking for absolute returns rather than relative returns, the product is ideal.” On an average, Thakkar’s schemes have returned 10 per cent more than the Sensex in the last three years. Agrees Kapil Krishan, CEO, India Infoline, which offers options for schemes with investment from Rs 5 lakh to Rs 25 lakh, “You have greater control over the asset allocation, whereas in a mutual fund it is automatic. The portfolio can be customised to suit the client’s risk-return profile, and the portfolio manager has relatively more flexibility to move in and out of cash as and when required depending on the view that he has on the market.” Transparency seems to be another factor that draws investors. Adds Sudeep Moitra, VP, Angel Broking, “In a PMS, customers know exactly what transactions take place in their accounts. Also they get a chance to interact with the fund management team. Besides, the returns can be higher than that from MFs. So even there is a lock-in period as we have for some of our schemes, clients prefer PMS to mutual funds.” Shashank Khade, head Kotak PMS agrees. Even though there is a lock-in for two-years in some schemes offered by Kotak Mahindra, individuals are willing to invest. Kotak being one of the early birds in the PMS space, the assets under management are approximately Rs 2,000 crore. That’s more than the AUM of some mutual funds. In fact, Kotak’s offering caters to the very affluent – where the minimum amount needed to be invested is Rs 1 crore. Says an industry veteran, “There has been a proliferation of PMS providers simply because it is far easier to get a licence for PMS than for an asset management company.” A firm needs to fork out Rs 5 lakh to the Securities and Exchange Board of India (SEBI) while applying for the licence and subsequently Rs 2.5 lakh every three years to renew it. “So, brokerages, which have a high net worth captive clientele, are able to mop up a reasonable amount of money to manage. Since this is a trust business where investors depend on brokers for advice, the service is becoming popular.” There’s no doubt about that. Typically there are two kinds of schemes – discretionary and non-discretionary. In the former, the portfolio manager takes all decisions and therefore, also charges a higher fee, typically 2 per cent or even three per cent of the net asset value. Firms such as IndiaInfoline and Religare, offer only discretionary PMS. Profit sharing arrangements – in which the firm retains 10 per cent of the profits – are also possible in which case the fee would be lower. For the non-discretionary schemes, the fee is lower and the client takes the decisions with the firm playing more of an advisory role. Firms such as Angel broking do not share profit and only charge a fee. Given that the minimum amount is not small, the clientele comprises high net-worth individuals, non-resident Indians (NRIs) and also some corporates. Some firms such as Religare ask for a minimum of Rs 25 lakh and charge a fixed fee as also a performance-based fee. While India Infoline has been building up its clientele through its dedicated sales team at its branches and advertising, at Parag Parikh it has been mainly through word of mouth and referrals and a team of associates for upcountry markets. Firms often arrange panel discussions for clients. Fund managers at AMCs believe that PMS and MF products cater to two different audience. Observes A Balasubramanian, CIO, Birla Mutual Fund, which offers only non-discretionary PMS and has both basket products as also customised products, “The segments cater to different kinds of investors with different mindsets and objectives. However, what seems to be happening is that PMS is being promoted for small amounts – Rs 5 lakh and Rs 10 lakh. The product is meant more for HNIs and someone who already has an exposure to a mutual fund product. For small investors the preferred option should be an MF, because risk parameters are well-defined and portfolios are diversified and so less risky. PMS can have a concentrated exposure, so clients must have a high risk tolerance.” But would PMS eat into MF assets? Fund managers are not worried about that. Says Shahzad Madon, Senior VP and Head, PMS, Prudential ICICI, which has been offering the product for six years now, and manages a corpus of around Rs 6,500 crore including advisory services for fixed income products. “We believe that both the products – MFs and PMS – are complementary and our experience has been that many of the clients opt for both.” Madon observes that neither MF assets nor PMS funds is growing at the cost of the other and thus there’s no cannibalisation.” With more AMCs determined to get their share of the pie, brokerages will find the going tough. For one, AMCs sponsored by banks have an advantage in that they can tap the retail customer base of the bank. SBI MF’s Chawla is hoping to cash in on this. Says he, “We have a large potential client in SBI. Even in the smaller towns, there are people who deal with us for other business who are looking for this service. Clearly, this is an idea whose time has come.” Chawla adds that a separate marketing team is being created and a one-to-one approach will be adopted. The fees could vary from 0.2 per cent for a pure debt scheme to higher levels for equities. Performance incentives for the fund managers will be built in.” ABN Amro’s Johri is hoping to grow the PMS business by marketing the product through a channel different from that for the MF product. Says he, “We will use a separate sales and marketing team and also enlist the support of independent financial advisors. We are asking for a minimum of Rs 50 lakh and we could soon take that up to a crore. We need to give differentiated service and products but the revenues are also far higher per client.” ABN Amro plans to charge fees starting with 2.5 per cent with performance -based incentives built in. At ING Vysya too, the idea is to provide high quality service. Says Sachdeva, “ PMS requires a far higher level of commitment and interaction. We launched in January and we’re going step by step, we’re in the process of bringing in the ING product basket from overseas, because we don’t want a me-too product.” Sachdeva believes that the PMS corpus could be as big as the AMC equity corpus of Rs 5000 crore, because it will be a focus area and feels that if the product is exciting enough distributors might be willing to sell it.” In all this customers should benefit with better service and possibly lower fee structures. And AMCs would be able to attract HNIs, whom they were losing out to stocks brokers and banks.•
HOME Business Standard • FUND MANAGER • October 2006 |