The capital markets regulator Securities and Exchange Board of India (Sebi) is expected to soon tighten rules on investments by portfolio management service (PMS) firms in their group entities. Consequently, there could soon be some new limits after the regulator realised that some entities invest clients’ money in associate firms, reported The Economic Times.
The current thinking within Sebi is to cap PMS firms’ investments in all equity and debt securities of related entities put together at 30 percent. The regulator might also ask portfolio managers to obtain the consent of clients if the money manager wants to invest in related parties, said the people cited above.
“The 30% cap being considered is at the group level, which means that not more than 30% of clients’ funds can be in all related parties put together,” said one of the persons familiar with the matter, reported ET. “The PMS manager may not be allowed to invest more than 10-15% of the client's money in a single, related-party entity.”
SEBBI has observed that some PMS firms, particularly the ones promoted by non-banking financial services companies (NBFCs) tend to deploy client money in the debt securities of the NBFC or equity offerings of other group companies.
PMS is an investment avenue for wealthy investors with a minimum investment capability of ₹50 lakh. Unlike investment structures such as mutual funds or alternative investment funds, the PMS provider doesn’t pool the money but enters into a one-on-one agreement with each client. The shares purchased by PMS firms on behalf of the client are held in a separate demat account owned by the client.
Unlike mutual funds and alternative investment funds (AIFs), which impose strict limits on portfolio concentration, PMSes have fewer restrictions.