PMS troubles rise on new Sebi rules

The Securities and Exchange Board of India’s (Sebi’s) recent clarification that portfolio management services (PMS) need to operate through individual bank accounts for individual customers is likely to add to the woes of the industry.

The 200-odd players in the PMS business are already suffering, with clients unhappy with heavy losses incurred in the stock market.

Last year Sebi had said that portfolio managers should not hold the securities belonging to the portfolio account in a single demat account but keep them in individual demat accounts.

Recently, Centrum Wealth Managers approaced Sebi to clarity on separate accounts. “We needed a clarification whether segregation would be applicable to bank accounts as well,” said Sriram Venkatasubramanian, head - wealth management, FCH Centrum Wealth Managers.

Sebi replied, “The portfolio manager shall segregate each client’s funds and securities and keep them separately from his own funds and securities.”

This means that clients need to open bank accounts and transfer power of attorney to their portfolio managers.

When PMS players approached clients to update their documents, many discontinued their accounts due to the sharp fall in value. “Many investors reviewed their portfolios and decided to discontinue due to reduction in value and more paperwork,” said Kunj Bansal, senior vice-president, Kotak Portfolio Management.

The new rules will also increase operational cost of PMS.