Drop in share of advisory assets in PMS funds during past 12 months

Overall PMS assets have been on the rise amid buoyant markets

The share of the advisory segment in the assets of portfolio management service (PMS) service providers has been falling of late.

The 12-month rolling average figure at the end of October was 8.61 per cent, the lowest on record.  Overall PMS assets under management, on the other hand, were at a record high in October, led by other segments such as discretionary and non-discretionary PMS funds.

The advisory segment is where the PMS provider only renders advice. It is up to the client to make the final decision and execute the trade. The non-discretionary segment is similar, but the PMS provider executes the trade. The discretionary segment is where the PMS provider takes the decision and also executes the trade.

The advisory assets had hit a peak of Rs 2.27 trillion in December 2021. It has since dropped 14 per cent to Rs 1.96 trillion as of October-end. The falling share of the advisory segment has also been driven by significant growth in other segments. Discretionary assets are up 11.9 per cent to Rs 22 trillion. Non-discretionary assets were also up 38.1 per cent to Rs 2.2 trillion even as advisory assets declined. Data from the Securities and Exchange Board of India (Sebi) has some gaps since the pandemic. The numbers are available on the regulatory website. The PMS segment on the whole has seen assets across all segments hit a record high of Rs 26.2 trillion

The S&P BSE Sensex hit an all-time high of 62701.4 on Monday. The index is considered generally indicative of market direction. It is up 23 per cent since its recent low of 50921.22 in June 2022. A large portion of the discretionary assets are because of money from the Employees' Provident Fund Organisation (EPFO) which began to invest in equities in 2015. Provident fund money accounts for nearly Rs 20 trillion of the total PMS assets as of October 2022. The money that PMS providers manage, excluding provident fund assets, is Rs 6.9 trillion.

The average PMS scheme has advantages including open-ended structure and exposure to small and midcap stocks which offers a differentiated investment avenue compared to investors, according to Dhiraj Sachdev, managing partner and chief investment officer at domestic investment firm Roha Asset Managers. Alternative investment funds (AIFs) are often close-ended and mutual funds have a more diversified portfolio with a more limited exposure to small companies. Alternative investment funds have a minimum investment size of Rs 1 crore compared to Rs 50 lakhs for PMS providers.

“The space will continue to attract money,” he said.

Hrishikesh Parandekar, senior partner at alternate asset management platform Alpha Alternatives, said that a lot of PMS players find it easier to have clients under the discretionary segment, which is easier operationally and for investing. Much of the advisory investments have started coming in through the registered investment advisory route.

“The propensity of clients to pay for advisory services in India has often been a challenge, which continues under the registered investment advisory segment; as has the requirement for transaction-wise documentation,” he said.