Portfolio Management service

23 Jul 2019 Read 1 Views

The Portfolio Management Service(PMS) industry has seen a robust growth of 18 per cent CAGR in the last five years between January 2014 to January 2019, according to Economic Times.  PMS is one of the trending financial investment products typically provided to HNI clients. But, starting a Portfolio Management Service business is not a cakewalk.

A Portfolio management service has focused portfolios wherein they invest in the security market directly. The assets of investors are maintained as accounts independently, however the securities invested in them may be similar. This PMS business is regulated by SEBI (Portfolio Manager) Regulations, 1993. It requires the business to get a PMS License. The entire PMS business begins only after receiving the PMS License. The step-by-step guide to getting the license along with the eligibilities are as follows:

Step 1: Formation of a company-  SEBI PMS license is only given to a corporate body i.e. an Limited Liability Partnership or a company. It cannot be given to an individual.

Step 2: Clause in the MoA- There should be a clause in the MoA of your company or the agreement of LLP specifying that the company has the intention to do the business of portfolio management or securities management.

Step 3: Infrastructural Requirements- You need to have an office space, equipment, communication and research facilities, etc.

Step 4: Appoint a Principal Officer (PO)- An employee needs to be designated as “principal officer”. The Principal Officer will be responsible for the activities pertaining to portfolio management.

Qualification requirements for the PO:

  • a professional qualification in finance, law or business management or anything similar from a university recognized by the Central or any State Government or a foreign university; or
  • a work experience of at least ten years in activities associated with the securities market
  • a CFA charter from the CFA Institute

Step 5: Requirement of two people- At least 2 persons are required either of who have at least five years work experience in portfolio management related activities or investment management.

Step 6: Appointment of Compliance Officer- A compliance officer has to be appointed who will be responsible for the compliance of the regulations.

Step 7: Capital Requirements- The net worth of the company / LLP should be at least Rs. 2 crores. This is the minimum net worth that has to be maintained at all times.

Step 8: Account opening in a Scheduled Commercial Bank- An account has to be opened in a Scheduled Commercial Bank where the client’s funds will be kept.

Step 9: Custodian Appointment- A custodian has to be appointed for keeping the securities of the clients. However, a custodian need not be appointed if the total assets under management are less than Rs. 500 crores.

Step 10: Arrangement with Stock Brokers- Arrangements with stock brokers for portfolio management activities have to be made.

For additional details in drafting the application, click here.                                                                                                                                        

About the Author: Saloni Parakh | 46 Posts

Saloni is an occasional writer who is usually updated with the current happenings around in the finance and legal domain. Writing is a passion for Saloni. She is a Grammar Nazi and a doodler at heart. 

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