PMS segment loses clients

Higher minimum order size takes toll

Compulsorily raising the minimum size to Rs 25 lakh from the earlier Rs 5 lakh has cost the portfolio management service (PMS) sector nearly a third of its client base over three years.

The number of PMS clients has dropped by 20 per cent in the past year, despite a sharp rally in the equity market.

Since the introduction of a Rs 25 lakh minimum investment size in January 2012, the client base has eroded by around 30 per cent. Since the regulation came into place, the total number of clients is down to 46,056 at the end of February this year, compared to 66,585 in March 2013.

“The raising of the investment limit has been a big dampener. It is a struggle to get new clients with such a large ticket-size,” said Sudhakar Ramasubramanian, chief executive officer (CEO) of wealth and online business at Aditya Birla Money.

A PMS service provider offers a range of customised investment strategies. It differs from a mutual fund (MF), where investors choose from various investment funds available in the market. The regulation was aimed at curbing the participation of retail investors in PMS.

The shutting down of several entities in the sector would have also led to a drop in the number of clients, analysts say. Official data shows, between April 2012 and February 2015, as many as 54 PMS firms had quit the sector.

Analysts believe several small-size ones had to go because of the higher minimum order size, as well as the poor equity market performance in 2012-13, when markets lost about 25 per cent of value. In 2014, when equity markets recovered and rose about 30 per cent, many investors also used this opportunity to book profits and exit the funds altogether. This further forced smaller PMS providers to exit.

“The recent decline in the number of clients has more to do with the fact that many wanted to get out. The recovery of their portfolio in 2014 might have made them liquidate these portfolios,” said A V Srikanth, founder and CEO, Citadelle Asset Advisors.

The total corpus of the segment was Rs 9.1 lakh crore as of end-February, up 18 per cent from Rs 7.6 lakh crore in February 2014. The MF sector has benefited from the increase in minimum PMS order size, say analysts. Many wealthy individuals would have chosen this route for channelling their investments, they said.

“PMS, with fewer regulatory controls, still under-performed the MF sector, which is much more heavily regulated. This added to (its) weakening popularity and saw many investors shifting to MFs for better returns,” said Pankaj Mathpal, managing director of Optima Money Manager. MFs with PMS arms also shifted focus back to the MF retail segment after the markets picked up, he added.

The number of folio accounts of the MF segment has risen by 1.6 million, to 41 million, in the past one year. Most of the rise has been in equity diversified schemes, where folios rose by about two million lakh or seven per cent.