Sebi may widen PMS scope

The Securities and Exchange Board of India (Sebi) is examining the possibility of allowing inclusion of currency and interest rate futures in portfolio management services (PMS).

“We are looking at allowing exchange-traded derivatives to be part of PMS. However, no decision has been taken yet,” Sebi Executive Director RK Nair said

On the derivatives side, PMS are allowed to use only equity-related derivatives products such as stock futures for hedging their portfolios.

Hinting at further PMS reforms, Nair said PMS was not as tightly regulated as the mutual fund (MF) industry.

“When we compare general regulations (pertaining to MFs), there is a lot of leeway given to PMS. In terms of investor protection, PMS is not that tightly regulated,” he said at a seminar organised by the Indian Chamber of Commerce (ICC) on PMS here on Friday.

At present, there are 247 portfolio managers registered with Sebi, with total assets under management of about Rs 2.71 lakh crore serving 57,134 clients. Of this, Rs 2.35 lakh crore is invested in debt schemes, Rs 30,000 crore in equity, while Rs 6,000 crore is in other investment schemes, according to the latest Sebi data.

Nair said there were several intermediaries such as private equity and hedge funds which offer services similar to that of PMS. It was becoming a challenge for regulators to see if any systematic issues were involved in them, he said.

Sebi has, in recent years, taken several steps to regulate PMS by banning pooling of client assets, putting up capital adequacy ratio norms and enhancing the minimum net worth requirement for registration as a portfolio manager from Rs 50 lakh to Rs 2 crore.

“Sebi is looking at allowing newer products into the financial markets, but is a little conservative in introducing structured products. We are looking at reforming primary and the secondary markets to make them more fair and inclusive,” said Nair.

He said PMS should not partake functions of a mutual fund. He also said, “We are thinking if there is a need to increase the minimum investment amount of Rs 5 lakh for PMS.”

Of the 57,134 clients under PMS, about 48,000 are discretionary clients whereas 3,529 are non-discretionary ones as on October 2009.