Investors' body calls for better performance disclosures by PMS providers

Also wants additional action against vanishing companies, says at least 752 firms that raised money from investors can no longer be traced

An investor association has written the the Securities and Exchange Board of India (Sebi), asking for better information to be provided on performance of portfolio management services (PMS) providers, shortly after the regulator tweaked norms governing the segment. 

The PMS industry caters largely to rich investors who can allocate large amounts to such schemes, and are typically seen as carrying more risk than mutual funds (MFs). A discretionary portfolio manager manages the assets directly. A non-discretionary one involves acting on the directions of the client. 

There is limited information on these schemes and how they have done, unlike MFs, which declare a daily update on performance. 

“Unfortunately, this data is not available in a form and manner, either on…(the)…Sebi website or the Portfolio Managers’ website, which is usable and easily discernable by an investor or public,” said the letter by Midas Touch Investors Association, a copy of which is with Business Standard. 

It has also asked for additional action on the issue of vanishing companies. The association states that there are at least 752 companies that raised money from investors but can no longer be traced. 

There have been efforts to identify vanishing companies, and a list is available. Strong action to redress investor grievances in such firms hasn’t been forthcoming despite the list, according to Virendra Jain, founder of Midas Touch Investors Association. 

“They did not do anything on that,” he said.

It has requested action to “recover money and assets of 752 vanishing companies and their promoters and directors within a defined time-frame”.

It has also suggested that action on increasing net worth and ticket-size for PMS providers could have been handled differently, given that it could have the effect of constricting the market. 

The capital markets regulator recently decided (in its November 20 meeting) that the net worth for portfolio management services should be increased from Rs 2 crore to Rs 5 crore.  The minimum investment size was also increased from Rs 25 lakh to Rs 50 lakh. It also made changes such as requiring discretionary portfolio managers to invest only in listed securities, money market securities, and other specified instruments. 

Non-discretionary or advisory portfolio managers cannot invest more than a quarter of assets in unlisted securities. 

Custodians, too, have been made mandatory for all providing such services, except those providing 

advisory services.  

A portfolio manager said there is lack of uniformity in the way PMS providers make the data available. Some provide only a model portfolio’s returns, others of only certain investors, and so on. 

The recent report of the working group on PMS norms had proposed standardisation of performance disclosures. 

An email sent to Sebi did not immediately elicit a response.
 

Call for higher transparency

• Disclosures vary in format at present
• This makes it difficult for investors to gauge performance
• Letter calls for regulation to ensure more uniform data from PMS providers
• Move follows higher net worth, ticket size announcements