PMS Distribution: Products, Processes and Investor Servicing
Domain overview
This domain tests how Portfolio Management Services (PMS) are sold and serviced under the SEBI (Portfolio Managers) Regulations, 2020: who may invest, how onboarding works, what a distributor may say, how fees are charged, and what reporting the client must receive.
Product rules
- PMS is a separately managed portfolio; the minimum investment per client is ₹50 lakh. A portfolio manager needs SEBI registration and minimum net worth of ₹5 crore.
- Discretionary PMS: the manager exercises discretion. Non-discretionary: client consent is needed for each transaction. The distributor explains the product, completes risk profiling and documentation, and never receives client funds or securities.
- Client funds and securities stay in segregated accounts; cash transactions are not permitted.
Fees and disclosure
Fees can be fixed, performance-linked or hybrid. Performance-linked fees must be benchmarked and subject to a high-watermark; a distributor must not present notional gains as chargeable performance. Commission paid to the distributor must be disclosed in the client agreement and fee disclosure. The disclosure document is filed with SEBI and given to the client before onboarding.
Servicing expectations
Monthly portfolio statements, performance reporting against the benchmark, a grievance redressal process (SCORES/SMART ODR), and annual update of the disclosure document.
Worked example
A client invests ₹50 lakh in a discretionary PMS with a 2% p.a. fixed fee. Annual manager fee = ₹1,00,000. If the distributor's commission is 0.40% p.a., that is ₹20,000, which must appear in the fee disclosure. Later the client wants to withdraw ₹5 lakh. The remaining ₹45 lakh would fall below the ₹50 lakh minimum, so the withdrawal cannot be made while keeping the account open; the client must withdraw fully or top up.
Traps
- Using the old ₹25 lakh minimum or confusing PMS with mutual funds.
- Saying the distributor can accept cash or cheques made out to the distributor.
- Quoting performance without a benchmark or promising assured returns.
- Charging performance fees on unrealized gains.
- Treating the monthly statement as optional.