Ticket size hurdle for PMS investors looking for top-ups in falling market

In January, the Securities and Exchange Board of India (Sebi) raised the minimum ticket size in PMS schemes to Rs 50 lakh from Rs 25 lakh earlie
Investors in PMS (portfolio management services) schemes, who want to top up their investment in a falling market, are constrained by a regulatory diktat that became effective earlier this year. 

In January, Sebi raised the minimum ticket size in PMS schemes to Rs 50 lakh, from Rs 25 lakh earlier. This meant that investors could no longer deploy additional money in a scheme, unless they met the minimum ticket size requirement. Before the new rules, they could top up their investments by a few lakhs, or even as low as Rs 50,000 in some cases. 
“Expecting someone who had invested Rs 25 lakh in the earlier regime to increase the investment amount to Rs 50 lakh in the current market environment is impractical,” said Kamal Manocha, CEO, PMS AIF World. “Sebi’s intent was that only those with a large corpus should invest in PMS schemes. However, existing investors who are sitting on losses and want to take advantage of attractive valuations, should be given the leeway to do a top up of smaller amounts for the next six months.” 

Falling markets over the past two months came as a blow for the PMS industry. A sizeable number of PMS schemes lean towards mid- and small-caps in their portfolio, and run concentrated portfolios of 15-20 stocks. Such portfolios increase the potential of higher returns but can exacerbate the fall, making exits difficult for investors. For a one-month period ended March, 71 of the 125 PMS strategies slid more than the 23 per cent decline posted by the Sensex, PMS AIF World data shows. 

 

 
According to Manocha, portfolios of several investors who put in Rs 25 lakh in the past few months have shrunk to Rs 15-17 lakh. “Everyone talks about investing when the markets are low; even mutual funds give you the option to top up when required. PMS investors should be given this freedom too,” Minocha said. Online platforms PMS Bazaar and PMS AIF World recently conducted separate polls on whether Sebi should allow top-ups of lower amounts in existing schemes without meeting the minimum ticket size criterion first. More than three-fourth of those polled voted in favour of such relaxations. 
Some experts, however, believe that reinvesting in a scheme that has fallen 30 per cent or more may not be a prudent strategy. “Investors are feeling aggrieved that they are not being able to take advantage of attractive valuations, and lower their average cost. However, if the market were to fall further, the additional investment runs the risk of getting wiped out as well, especially if the scheme has slid more than the benchmark indices and is taking a higher risk," said Siddhartha Rastogi, managing director, Ambit Capital. He said a better option would be to deploy the money in the Nifty index funds in a staggered manner to take advantage of further falls.

On March 30, Sebi deferred the implementation of the PMS circular, dated February 13, which put an expense cap and laid down performance standards for the industry. However, the requirement of meeting the higher ticket size was not relaxed. 

This is the second time in the past two years that PMS players have had to take a hard knock to their portfolios — mid- and small-cap names had seen a significant correction in early 2018 as well. 

PMS assets have doubled in the past five years to Rs 18 trillion as of January 31, 2020. A large portion of this money is in discretionary schemes, wherein the portfolio manager manages the fund of individual clients.



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