PMS client base drops by a fifth in one year despite boom in markets

Experts believe tightening of rules before the pandemic led to decline

Portfolio managers have seen over a fifth of their clients drop off over the course of a year despite booming markets.

Portfolio management service (PMS) providers had 163,684 clients in May 2020. This has dropped 21.2 per cent to 128,994 as of May 2021, shows data compiled from a monthly regulatory bulletin. The Securities and Exchange Board of India (Sebi) releases PMS data with a lag. The latest May data was released earlier in August.

Among the reasons that experts believe contributed to this decline include a tightening of rules before the pandemic. Curiously, the surge in the stock markets afterwards is also said to have been a key reason for exits.

The S&P BSE Sensex is up 72.1 per cent since last May. A number of investors saw individual stocks multiply manifold over the last year. More diversified PMS funds would not necessarily give the same returns, and many clients may have acted on the difference in gains suggested independent market analyst Ajay Bodke.

“Lot of investors…feel they can do better,” he said.  

A senior official with one of the leading asset managers noted that the PMS segment had signed up a lot of clients around five years ago. They did not see good returns as the markets stagnated for a few years. Many are now choosing to take cash off the table as their investments begin to turn profitable. This tends to happen when a boom follows a period of mediocre returns, he suggested.

“Any cycle….it will happen,” he said.

The regulator also recently tightened rules around PMS services. The minimum investment in such schemes was raised from Rs 25 lakh to Rs 50 lakh. This was made effective from January 2020. Any additional investments made would have to take the total to at least Rs 50 lakh.

“The client may withdraw partial amounts from his portfolio, in accordance with the terms of the agreement between the client and the Portfolio Manager. However, the value of investment in the portfolio after such withdrawal shall not be less than the applicable minimum investment amount,” added a note on Sebi’s website.

A closer look at the data shows that discretionary segment clients which make up the bulk of PMS clients have also seen the largest drop in number. The discretionary portfolio manager independently manages client money. A non-discretionary manager invests based on the client’s instructions. As many as 31,297 clients stopped using discretionary PMS services between May 2020 and May 2021. The drop is 35,979 from January when regulations changed.  

Non-discretionary clients fell 13.3 per cent to 8,073 in the year leading up to May 2021. The two segments account for 98.7 per cent of PMS clients.

There has also been a lot of competition from advisory services that non-PMS providers offer. They allow investors to execute trades themselves in a basket of stocks. The ticket-size is lower in such offerings, pointed out Daniel GM, founder-director at industry-tracker PMS Bazaar. This may mean that a surge in clients for PMS players would not be immediate.

“To reach the previous peak, it will take a little more time,” he said.