Equity products of Portfolio Management Service (PMS) providers saw their client base shrink a little over 20 per cent in the financial year ending March 31 from the previous year.
The increase in the minimum investment limit for PMS clients to Rs 25 lakh from Rs 5 lakh, coupled with a rebound in equities in 2012, prompted investors to redeem from these products, tailor-made for well-heeled investors. About 15,000 clients exited discretionary PMS schemes, which independently manage the portfolio, in 2012-13, according to official data.
This left the PMS discretionary business with about 50,900 clients as on March 31. In financial year 2010-11, this product had close to 70,000 clients.
Many clients, which had investments less than Rs 25 lakh in PMS products, chose to exit rather than top-up their investments, after Sebi in January 2012 raised the investment threshold under this segment to Rs 25 lakh. Since most clients with ticket-size less than Rs 25 lakh belonged to the discretionary PMS category, this one was impacted the most. However, the client exits had little impact on the assets under management of equity products. Assets of equity PMS products (listed and unlisted) were Rs 17,220 crore as on March 31, against Rs 16,896 crore the previous year.
Wealth managers said clients could have also redeemed because most PMS providers have not been able to deliver returns commensurate with the fees they charge. While the fixed charges for PMS equity products could be around two per cent, comparable to equity mutual fund schemes, the performance fee of about 20 per cent squeezed the returns.
"PMS providers are charging the variable fee on total returns and not the outperformance. This takes a toll on the returns even if there is an outperformance," said Raghvendra Nath, managing director, Ladderup Wealth Management, which services rich individuals.
Agreed Prateek Pant, director, products & services, RBS Private Banking, "The performance of some discretionary PMS managers managing equity portfolios have not met investor expectations over the years and often did not justify the fees charged for the service. Hence, many investors have chosen to exit these schemes at the earliest opportunity, post any exit barriers."
Advisory-based services by PMS providers have been gaining popularity among investors. In 2012-13, when the number of discretionary clients declined, the number of clients under the advisory business went up by about 2,000. "This could also be because the number of players offering these services has gone up in the last year. New players entering the market are also increasingly looking at the advisory model to do business," said Sandip Sabharwal, chief executive of PMS at Prabhudas Lilladher.
Discretionary PMS is the largest category and accounted for 76 per cent of the total client base in FY13. This is, however, five per cent less than in FY12. During this period, the contribution of advisory services increased five per cent, to 17 per cent. The client base under non-discretionary PMS fell 0.3 per cent, to about seven per cent.