The capital markets regulator, Securities and Exchange Board of India (SEBI) is considering doubling or even quadrupling the minimum ticket size for investment in Portfolio Management Services (PMS) schemes. The regulator will soon enhance the investment limit under PMS to Rs. 50 Lakhs or Rs. 1 crore.
Currently, the minimum ticket size for a PMS is Rs. 25 lakh and that for an AIF is Rs. 1 crore. The average ticket size of investors in PMS has gone up substantially in the past two years. Often HNIs prefer to invest in equities through the PMS route, as the fund manager has the flexibility to build a concentrated portfolio of midcap and smallcap stocks.
Back in the year 2012, SEBI raised the minimum investment amount of Portfolio Management Schemes (PMS) for investors to Rs. 25 lakhs from the earlier Rs. 5 lakhs. PMS offers investors a range of specialised investment strategies to capitalise on opportunities in the market and made suitable to the needs of individual clients.
Earlier, when SEBI had increased the limit, it was applicable only to new investments, existing ones were allowed to continue with minimum 5 lakhs investment. Similarly if one wishes to subscribe for PMS today, the investor will be allowed to continue with minimum investment of Rs. 25 lakhs.
Now let us understand the difference between “PMS & Mutual Funds (MF)”
Both PMS & Mutual Funds are managed by the professionals so both are equally good in their aspect but still there are a few advantages & disadvantages of one over the other.
MF portfolio on a day to day basis gets diluted or concentrated whereas in a PMS it is an individual demat account in which the shares are credited in clients demat account. For instance, if you subscribe for a PMS today then your shares will be bought and credited to your demat account after that as many investors come in and go out it will have no impact on these stock which you have bought at your buying price.
MF is a diversified portfolio wherein there are 50-60 stocks & in a PMS it has a portfolio of 15-20 high conviction ideas, so definitely a PMS over a long period can outperform over Mutual Funds.
In a MF a fund manager cannot go beyond 10% of the overall allocation in a particular stock. So in short once it starts crossing 9-9.5% then the fund manager has to start trimming it. In other words they are forced to sell their winners which at times can lead to reduction in returns. Whereas in a PMS there is no such capping but generally after crossing 15-18% they start trimming it and they don’t go beyond 20%.
MF are well diversified in multiple sectors whereas in PMS if the fund manager does not like certain sectors then he may choose to exclude those sectors and allocate more in the sectors in which he has high conviction.
So if you want a better outcome of your investments through PMS then, now is the right time to upgrade your investments from Direct Equity & Mutual Funds to PMS and get its benefits at just Rs. 25 lakhs.!!