This article is written by Utkarsh who is pursuing a Certificate Course in  Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.

Introduction

India is the fastest-growing economy in the world. Every foreign investor is in search of safe nation where he can set his business. India is becoming the first choice for all the investors, manufacture, entrepreneur due to various reasons like stable Government from more than 75 yrs of Independence expect once. Another crucial factor like availability of the natural resources, human resources cheaper than other countries, young talent and the most huge consumer market.

The growth in the Stock market is more than 100% in most of the sectors despite of the introduction of GST, Demonization and most important Pandemic. Now, the stock market is touching the new high Sensex has crossed 50,000 points which is all-time high. Auto, Banks, FMCG and IT.

In such type market, there will be nothing good as providing the PMS to the investors. The level of a financial liter.

What is portfolio management service?

Portfolio Management Services (hereafter PMS), provided by the Portfolio Manager, who is a professional, invests the capital of the investors in a diversified portfolio consist of stocks, fixed income, debt, equity, currency, derivatives and other financial instruments so that return on the investment would be increased, with keeping in mind the risk factor, other investment objectives.

According to SEBI “A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise), the management or administration of a portfolio of securities or the funds of the client.”

In simple words, we say that a professional financial manager managing your funds according to its best potential abilities to maximizes your profit according to your risk-taking potential, and charges a certain amount as his fees/charges.

Type of PMS

There are generally two types of portfolio services are practiced in India:

Discretionary PMS

Managers have the full authority to buy and sell any type of securities. there is no obligation on the service provider to consult the investor before taking any decision.

Non- Discretionary PMS

The investor has right in most of the portfolio activities. He/she can provide suggestions and ideas to the Portfolio manager. The portfolio Manager despite of the appropriate knowledge and attitude has to consult the investor before trading any crucial call.

A Brief History of PMS In India

The Securities Exchange Board of India (hereafter SEBI) issued the Securities and Exchange Board of India (Portfolio Manager) Regulations, 1933 from where legalization of the Portfolio Management Services started. Before this PMS was a totally unregulated activity and was no control, legal compliance, over the Government. The issuance of these guidelines within a year establishment of SEBI reflects the potential growth in the service in the capital sector.

Parag Parikh Financial Advisory Services Ltd. (PPFAS) launched the PMS named the Cognito in October, 1996. In 2000, ICICI Prudential was the first institutional participant to provide PMS services. 

In 2007, JM Financial offered the capital protection-oriented PMS. In the same year provided like Kotak launched small-cap equity PMS portfolios. 2009, onwards Forefront Capital Services, quantities PMS based on the fundamental for the HNIs and the institution. The service was launched in September 2009 and invests in large caps equities using the quotative models based on company and macroeconomics fundamentals.

In 2011, Banaza Portfolio Ltd. Launched Shariah Portfolio Management services – as per the Shariah Board, Islamic Investment and Finance Board (hereafter IIFB). It was targeted towards Indian Muslims.

Before, 2008 many PMS products charged fixed fees then afterward the performance base becoming popular.

Major PMS Service Provider in India 

Motilal Oswal PMS

Motilal Oswal is one of the largest full-service stock brokers in India. The company was founded by Mr. Ramdeo Agarwal & Mr. Motilal Oswal in the year 1987. The broking house headquartered in Mumbai, Maharashtra. Motilal Oswal is one of the few broking houses which is listed in the Stock Market.

One of the most renowned Business models of Motilal Oswal is their Portfolio Management Services. They are one of the largest players in PMS & known for their PMS performance. They have a wide list of fund managers who look after their PMS business.

Ask PMS

ASK Investment Managers Limited (ASKIM), is a leading asset and wealth management company, primarily catering to the HNI and UHNI market in India. We were one of the first companies to obtain a portfolio management services license in India and the third largest company in both discretionary listed equity portfolio management services and discretionary equity overall portfolio management services according to assets under management as of May 30, 2018.

Kotak PMS

Kotak PMS – Amongst the oldest PMS in the streets of Capital Market. St5rong research and operation team, Consistent client integration. Investment strategy, Large market opportunity. Business with robust competitive advantages, strong financials and Earning Growth, Management Dynamism and Good Corporate, Fair Valuations.

ICICI Prudential PMS 

ICICI Prudential Portfolio Management Services (PMS) enjoys a rich parentage of two large organisations ICICI Bank Ltd which is India’s largest private sector bank in addition to being one of the most trusted brands in financial services and Prudential Plc UK, an international financial services company, with significant operations in Asia, US and UK.

Different between the Mutual Funds and PMS

The overall goal of the investor is Wealth Creation but there can be different routes from achieving such objectives. The most popular ways of investing from the investor’s point of view are Mutual Funds and the PMS. The main question arises in all of our mind that what is difference between them?

Eligibility Criteria  

Investor

There is no such legal compliance for the investor with respect to the investment. The mainly these services are for high net-worth customers. There are following documents required, shall be issued by the appropriate Government. 

1. Permanent Address Proof;
2. Permanent Account No.- It is commonly known as PAN No., or PAN card;
3. Aadhaar Card;
4. Passport;
5. Income Proof;
6. Bank Statement.  

Service Provider 

• PMS has to obtain the registration from the SEBI.

An applicant has to pay a non-refundable fee of Rs. 1,00,000 (one lakh rupees) in favor of “Securities and Exchange Board of India”, payable at Mumbai by the way of Demand Draft.

1. In case of acceptance of the application, there will be a submission of INR 10,00,000 (ten lakhs rupees), subject to the renewal after every 3 years.
2. The portfolio Manager must have a minimum net worth of Rupees 5 crore at the time of making the application.

Process 

1. Incorporation of the corporate body– SEBI’s PMS license is only for the body corporates such as LLP, Company because it isn’t providing license to the individuals.

2. Memorandum of Association- MOA of the body incorporates must have the clause that it will deal in the Portfolio Management Services.

3. Infrastructure Mandates – there shall be proper Registered Office, equipment s, communication facilities, research Facilities.

4. Appointment of the Principal Officer- Principal officer shall be a person, who will be responsible for the portfolio management services.

There are qualifications mandate for the Principal Officer:

• Professional Qualification in the field of law, accountancy, finance from a recognized university, or institution recognized from either Central University, State University, or Foreign University;
• Minimum 5 years experience required in the activities related to the securities related to the Asset Manager, Securities Manager, Fund Manager;
• Relevant NISM certificate as specified by the Board from the time to time.

5. Appointment- there shall be an appointment minimum of one person who should have experience in the activities related to the portfolio manager or stockbroker or investment advisor or fund manager.

6. Compliance officer- there shall be a compliance officer who will be responsible for all the compliance of requirements.

7. Capital requirements – the net worth of the Company/ LLP should be at least INR 5 crore (five Crore).

• Net worth” means the aggregate value of paid-up equity capital plus free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off, including miscellaneous expenses not written off. This minimum net worth should be maintained at all times.

8. Opening of account in Scheduled Commercial Bank: You need to open an account in a Scheduled Commercial Bank where the funds of the client will be kept.

9. Appointment of custodian: You need to appoint a custodian for keeping the securities of the clients.

10. Tie up with Stockbrokers: You need to have arrangements with stockbrokers for portfolio management activities

Conclusion 

From the above discussion, it is clear that initiating the PMS business is not a cakewalk. There is a reason behind it, which obliges the Portfolio manager from misusing the funds of their clients. If You have prior knowledge in it and having a professional and interest in PMS business then in such a case no business can be proved as a hen with a Golden egg.

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