SEBI rule forces PMS to shift assets to mutual fund

Parag Parikh Financial Advisory Services (PPFAS) has proposed to channel assets from its portfolio management services (PMS) business to set up a mutual fund. The structural change is perhaps the first of its kind since the market regulator proposed a five-fold increase in the minimum investment level for the PMS segment.

The Securities and Exchange Board of India’s (Sebi) proposal to increase the minimum threshold from Rs5 lakh to Rs25 lakh added to a series of other existing operational issues, resulting in a decision to switch to a mutual fund structure to manage its clients’ money, said a top executive of the firm.

Under the PMS structure, an investment manager takes a client’s money and manages this corpus for him in return for a fee.
 

Sebi suggested that this service should only be made available to sophisticated investors because of the high risk involved, and has accordingly proposed an increase in minimum threshold.

Although in value-terms the bulk of PPFAS’s assets comes in from clients who are above the Rs25 lakh threshold, the maximum number of clients are at the Rs5 lakh threshold, said a company official prompting a shift to the mutual fund model.

On the Sebi website, the status of an application by PPFAS reads thus: the company is ‘to revert with further information.’
 

Rajeev Thakkar, CRO of the firm, said the company had received an in-principle approval in June 2011.

“We hope to be ready to start operations in 4-5 months pending final regulatory approvals,” he said.

PPFAS currently has assets under management (AUM) of Rs350 crore. This would make it larger than 19 of the 42 players in the mutual fund industry in terms of equity AUM.

The shift was also because handling client numbers which had grown from 25-30 in 2003 to 560 was becoming a problem operationally, said Thakkar.

“There would be documentation requirements at multiple levels. One would need to do the paperwork for a separate bank account, another set for the custodian, yet other documents for brokerage and a separate PMS paperwork,” he said.

The asset management company will be set up with an initial capital of Rs15 crore.

PPFAS had a net profit of Rs5.8 crore in 2011, according to its latest annual report.

Source: http://www.dnaindia.com/money/report_sebi-rule-forces-pms-to-shift-assets-to-mutual-fund_1595830