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SEBI heat forces funds to revive PMS
December, 09th 2009

Portfolio management service (PMS), a business that was largely ignored by many asset management companies (AMCs), is back on their radar. While many fund houses, which already have PMS arms, are looking to revive this business, new entrants in the mutual fund industry such as Canara Robeco, Shinsei Asset Management and Axis Asset Management are gearing up to start this service meant for wealthy clients.

The reason for enthusiasm among fund houses to revive or launch these specialised fund management services goes beyond just providing exclusive services to clients, said industry officials and distributors. These moves find their roots in the recent SEBI clamp-down on distributor commissions from August, which resulted in the reluctance to sell equity schemes, causing a significant dip in asset growth. Some large fund houses have found that PMS is a better tool to keep distributors in good humour, as it is largely free from the market regulators purview. And smaller players in the industry have been quick to follow suit.

The industry is seeing the PMS route as a way to remunerate distributors nowadays, as there is lot of scope for better pricing here, said a top official of a private fund house, which is believed to run the largest PMS business among mutual funds. PMS providers are not required to disclose their assets or returns from schemes, unlike mutual funds schemes.

Mutual funds are asking distributors to push their PMS products that have a potential to earn them a higher commission. Despite being a low-volume business, distributors are not complaining as they have been deprived of commissions from selling mutual fund schemes since August after SEBI banned fund houses from charging an entry load from investors.

Officials of the new mutual funds, which are likely to start this service soon, do not agree with the contention that the PMS business is being launched to remunerate distributors.

The intention to launch PMS is not only to have a free hand in fixing fees and remunerating distributors, but to mainly provide our specialised expertise in fund management to our clients, said Avinash Ramnath, national sales-head, Canara Robeco Asset Management.

The intention to launch PMS is part of our plan to service offshore mandates and have an advisory business... A free hand in distributor fees is not our intention to launch it, said Sethuram Iyer, CIO, Shinsei Asset Management. Officials of Axis Asset Management could not be reached.

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