Recently, the Securities and Exchange Board of India (SEBI) reviewed and proposed certain performance reporting and benchmarking norms to enhance transparency in the disclosures of portfolio management services firms (PMSes). In this article, we will analyze these new norms by SEBI in detail and understand the benefits of this regulation.
What is Portfolio Management Services (PMS):
- Portfolio Management requires a minimum of Rs. 50 Lakhs investment. It is almost like mutual funds, but the minimum amount of investment is high.
New Norms for PMS:
- SEBI has come out with a new & interesting regulation regarding PMS.
- Similar norms were brought for mutual funds in 2017. The Changes shall come into effect from 01-04-2023
Performance Benchmarking:
- SEBI has guided that a PMS needs to categorize the fund based on Equity, Debt, Hybrid, or Multiasset.
- Benchmark Clarity: SEBI has asked Association of Portfolio Managers of India (APM) to create 3 benchmarks for each of the categories which are equity, debt, hybrid, and multi-asset. A portfolio Manager needs to select and define his/her investment approach.
- Benchmarking cannot be changed unless approval is taken from investors & exit load is removed for the free movement of funds.
- Investment Approach: Growth, Value, Contrarian, Dividends, or other investing approaches have to be highlighted under the new norms.
Reporting of Performance:
- All the companies have to report XIRR for all the investors in toto in the form of worst medium & best performance. Returns shall consist of trailing returns, the format of the same has been attached below.
- PMS have to also inform regarding portfolio turnover in the prescribed format.
Benefits:This shall create more transparency & comparability between various PMS & unbiased data of all the PMS shall be available, reducing the dependence on the marketability of the PMS.
What Should Investors Do:
This new norm by SEBI for the PMS will provide transparency and clarity of the investments to the investors of their PMSes. It will also help the investors to compare the performance of various PMS firms. An investor should take a wise call before deciding on investing in PMS. Follow due diligence before making investment decisions.
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