Late on 31 March, with just hours to go before new regulations for portfolio management service (PMS) providers took effect, an email from the industry body landed in the inboxes of its members. PMS firms manage investment portfolios for those who can invest at least Rs 50 lakh (US$61,000). 

That email from the Association of Portfolio Managers of India (APMI) declared a key change to the benchmarks announced just the previous week. The large-cap index large-cap index large-cap index A large-cap index is a stock market index that includes the largest publicly traded companies in terms of market capitalisation S&P BSE Sensex 30—one of the three prescribed benchmarks for equity PMS schemes—was swapped out for the multi-cap index multi-cap index multi-cap index A multi-cap index is a broad representation of the market, the index covers all major industries in the Indian economy S&P BSE 500.

This change, approved by the markets regulator Securities and Exchange Board of India (Sebi), came after protests from PMS providers. 

“It was a response to the noise made by PMS players objecting to only large-cap indices being included as equity benchmarks,” explained Amit Mantri, co-founder of 2Point2 Capital, a Mumbai-based PMS provider that operates a multi-cap scheme. 

While the benchmarks are no longer entirely unrepresentative of most PMS schemes, the providers are still dissatisfied. 

Unlike tightly regulated mutual funds that cater to retail investors and have a minimum ticket size of Rs 100 (US$1.2), the PMS industry has historically had light-touch regulation. The lack of more oversight stems from the assumption that PMS investors—high-net-worth individuals (HNIs)—are financially sophisticated with a high-risk appetite. But this leniency is quickly becoming a thing of the past.

A few factors have seemingly spurred Sebi into taking action. The PMS industry has seen a ~40% asset-growth rise since February 2020. But it has also seen instances of sneaky tactics, such as some players showcasing their best returns and front-running front-running Sebi In the matter of Front Running by Banhem Securities Pvt. Ltd. and Ninja Securities Pvt. Ltd. Read more . And now, PMS providers are expanding their presence in smaller cities.

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Sebi has been gradually tightening the screws on the industry. A market veteran termed the earlier avatar “the Wild West”.