Providing Portfolio Management Services (Non-Registered)

#1
Hi Friends,

I want to provide PMS to investors with a minimum investment of 5 lacs. The problem is that to get SEBI registration it is way too expensive.

Is it wise to follow the exact same guidelines and do it on a smaller scale without registration with SEBI? Using a medium to long term approach for clients. Your inputs will be useful. Let me know
 

boarders

Well-Known Member
#4
Hi Friends,

I want to provide PMS to investors with a minimum investment of 5 lacs. The problem is that to get SEBI registration it is way too expensive.

Is it wise to follow the exact same guidelines and do it on a smaller scale without registration with SEBI? Using a medium to long term approach for clients. Your inputs will be useful. Let me know
SEBI has mandated that minimum for PMS is 25 lakhs
 

NJ23

Well-Known Member
#6
No, see, the cheaper alternative is to become a sub-broker/ authorized person with a broker and get a registration number from SEBI/Exchanges. Then you can advise people(I'm assuming you're talking about advisory and profit sharing or fee based business and not taking the custody of client's money and maintaining them. That requires a PMS license and advisory requires you to be registered as an advisor, costs around Rs 1 Lac to get registered). The reason this registration is required is if you screw up the clients with some fraud, SEBI can take a proper action against you. As a registered sub-broker, SEBI can take action against you if you mess up.

The trick in here is that brokers don't allow your clients to be billed directly by you. May be that's just on the part of issuing contract notes. So, negotiating that you can charge a fee to your clients or share a profit % with the broker you'll be associating with would be a good idea.

AP registration could cost you somewhere around 2500 per segment. Register for the segment you'll be advising.

For your reference:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358779330956.pdf
Chapter II 4 (g)

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1369826090264.pdf
 
#7
Thanks for the info. There are a few grey areas here:
1. There are scores of well known people who are doing PMS unregistered because the entry barriers for PMS are too high for both the Portfolio Manager and the client. (I assume you already know the costs)

2. There is no mention of punitive action if the PMS is carried out in a lawful manner in-spite of being unregistered.

3. Investment Adviser license does not give the right to manage Portfolios.. It only gives license to advice.

4. Becoming a sub-broker to provide PMS is no different from a regular un-registered PMS provider because it is equally unlawful.

What do you think of these views? Mention in detail. I'm sure there are many experienced traders who would like to do the same..
 
#8
Also, if you do think investment advisor is the way to go, do you think it is appropriate to get it in my individual name rather than company? Because for individuals it costs Rs.10,000/- (Saving of Rs.90,000/-)

Can I use this license on behalf of the company? Complex I know, but these are genuine queries no one seems to know about.
 

NJ23

Well-Known Member
#9
Thanks for the info. There are a few grey areas here:
1. There are scores of well known people who are doing PMS unregistered because the entry barriers for PMS are too high for both the Portfolio Manager and the client. (I assume you already know the costs)

2. There is no mention of punitive action if the PMS is carried out in a lawful manner in-spite of being unregistered.

3. Investment Adviser license does not give the right to manage Portfolios.. It only gives license to advice.

4. Becoming a sub-broker to provide PMS is no different from a regular un-registered PMS provider because it is equally unlawful.

What do you think of these views? Mention in detail. I'm sure there are many experienced traders who would like to do the same..
Also, if you do think investment advisor is the way to go, do you think it is appropriate to get it in my individual name rather than company? Because for individuals it costs Rs.10,000/- (Saving of Rs.90,000/-)

Can I use this license on behalf of the company? Complex I know, but these are genuine queries no one seems to know about.
If you're a non-discretionary PMS provider, you're as good as an Investment Adviser. The point is to have an open mind. People coming to you for the advise generally won't disrespect your advise and take their own calls on the investments. That's what they'll be paying you for. Register as an Individual Adviser(Which you won't be able to use in the name of your firm) and develop a business model which would take you closer to actual PMS. Being a sub-broker would allow you to close deals faster on your advise. This would even ease out the regulatory and reporting burden on you. There's nothing illegal about being a broker/sub-broker and advising your clients. Brokers do charge for providing investment ideas. That's what you want to be doing right? Providing investment ideas, making sure that clients take your calls and in turn share the profits with you? Discretionary is only feasible for corporates.

Better yet is post this question in legal forums and see what they have to say. Do share if you get anything from those forums.
 

DSM

Well-Known Member
#10
Hi Rahul,

Just a general comment, and not the one you are asking for. What is your experience in the stock market? I.e how long have you been trading? You have left out that critical detail. The reason is just to advise with a word of caution. If you have started trading recently (last couple of months) or less than a year, your portfolio return as well as your confidence will be quite high. The question is have you encountered a bear market? And how will your portfolio perform in the down trend? What is your trading strategy - is it technical or fundamental.... these questions are important to answer - more for you than to your prospective clients. No offence, but if anybody has started investing recently, they would have surely made a good amount of money, because in a rising market, on an average most of the stock move up, and very few would go down. This can lead one to be over confident.... and unfortunately, this ends up badly for the investors, but more so for the portfolio managers..... This is just a friendly word of caution. Please take it as such. I do surely hope that you have a solid trading/investing plan for trading/investing and risk and money management that is robust to withstand a downtrending or a sideways market and make money for your clients and yourself.

Good luck.

Hi Friends,

I want to provide PMS to investors with a minimum investment of 5 lacs. The problem is that to get SEBI registration it is way too expensive.

Is it wise to follow the exact same guidelines and do it on a smaller scale without registration with SEBI? Using a medium to long term approach for clients. Your inputs will be useful. Let me know
 

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