SEBI's MF-only PMS proposal puts focus on value beyond fund management
Portfolio managers to seek clarifications on disclosures, conflict of interest, client suitability and eligibility norms
The Securities and Exchange Board of India (SEBI) has proposed a new category of Mutual Fund-only Portfolio Management Service (PMS) to differentiate between traditional portfolio management and investment advisory. This new category would allow portfolio managers to exclusively manage investments in the direct plans of mutual funds, exchange-traded funds (ETFs) and specialized investment funds (SIFs).
Bhavin Shah, a portfolio manager and board member of the Association of Portfolio Managers in India (APMI), noted that MF-PMS is already possible through the regular PMS route, questioning the incremental value it would provide. SEBI suggested that a client cannot be serviced through both the distribution mode and the MF PMS mode.
The proposed fee structure could result in investors paying both the mutual fund expense ratio and the PMS management fee. Biharilal Deora, Chairman of APMI, emphasized that the value proposition lies in discretionary portfolio management, asset allocation, and execution rather than just access to mutual funds. The framework aims to cater to investors with substantial mutual fund portfolios who desire professional asset allocation, fund selection, execution, and portfolio rebalancing without managing each investment decision themselves.
APMI is preparing its representation on the draft paper and is expected to address concerns regarding disclosures, conflict-of-interest safeguards, client suitability, corpus and net-worth requirements. Sandeep Jethwani, Co-founder of Dezerv, highlighted that the proposed category targets mass-affluent investors prioritizing direct plans, low costs, and offloading operational burdens to a manager with discretionary authority.
The framework would allow portfolio managers to invest in direct plans of mutual funds, ETFs, SIFs, overseas securities, to-be-listed securities, investment-grade unlisted debt, and provide greater flexibility in using exchange-traded derivatives and simplifying compliance requirements.
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