“The introduction of PRIM meaningfully widens access and brings more investors into a well-regulated, professionally managed framework,” said Vikas Khemani, Chairman, Association of Portfolio Managers in India (APMI).
PRIM regulations
Permitted investments:
Direct plans of mutual funds, ETFs, index funds and SIFs.
Minimum ticket size: Rs.25 lakh
Net worth: Minimum Rs.2 crore
Management fee: Fixed fee capped at 1% of client AUM
Performance fee: Allowed
The PRIM route
The permissible securities under PRIM are direct plans of mutual funds, including exchange-traded funds (ETFs), index funds and SIFs of Indian asset management companies (AMCs). An existing portfolio manager will be able to offer PRIM through a separate investment approach. An applicant who wants to operate strictly within PRIM’s permissible securities may obtain a new registration. In either case, the minimum ticket size is Rs.25 lakh.
Sebi has laid down guidelines for PRIM. These include a net worth requirement of Rs.2 crore. Investments in schemes of af filiated, group or associate AMCs will be subject to a cap of 25%. A fixed management fee will be capped at 1% of the client’s assets under management (AUM), and a performance-based fee model is also permitted. The guidelines also require segregation of activities and clients between the mutual fund distributor (MFD) and PRIM, except for accredited investors.
Sandeep Jethwani, Co-founder, Dezerv, said: “The real challenge is managing a portfolio well, deciding which funds to own, how much to allocate, when to rebalance, and how to stay disciplined through market cycles.” He adds: “The gap is not access to products, but the quality and discipline of portfolio management. PRIM changes this by putting these decisions with a regulated portfolio manager who invests only through direct plans.”
IPOs and debt
The regulator also widened the investment universe for portfolio managers. They will be permitted to invest in IPOs and in primary market issuances in the debt market. This means they can buy into companies at the IPO stage and subscribe to debt instruments when they are issued. Portfolio managers offering Discretionary Portfolio Management Services (DPMS) will also be able to invest in unlisted debt securities, within limits. Exposure is capped at 10% of a client’s AUM, the securities must be investment-grade and non-convertible, and the client must consent. Khemani said: “Allowing discretionary PMS to allocate up to 10% of client AUM into investment-grade unlisted debt, with client consent, gives managers welcome flexibility to construct better risk-adjusted portfolios.”
Going global
The new framework allows investment in foreign securities under both DPMS and Non-Discretionary Portfolio Management Services (NDPMS). This brings overseas real estate investment trusts (REITs) and foreign debt into the picture. Permissible instruments include listed equity, debt, REITs, overseas mutual funds, ETFs, index funds and foreign government debt.
Other measures
The Sebi has also introduced the concept of Independent Fund Managers (IFMs) that may manage client portfolios in association with a registered portfolio managers. The portfolio managers will retain full responsibility and liability for the IFM’s activities. A portfolio manager may affiliate with multiple IFMs, but an IFM can operate under only one portfolio manager. At the same time, Eligible Fund Managers (EFM) Investment Framework has been introduced for managing and advising on eligible investments such as overseas securities.—abhinav.kaul@timesofindia.com