If you have Rs 5 lakh to Rs 25 lakh and have been entrusting this money to a portfolio manager, you may not have this luxury for very long if a SEBI proposal becomes a regulation. 

SEBI in a concept paper has suggested that the minimum amount for investment under Porfolio Management Services (PMS) could be Rs 25 lakh, and not Rs 5 lakh, as it is at present. 

So where will someone with Rs 5 lakh to Rs 25 lakh go for customised investment advice and services? 

"Such a change will definitely affect people with these kind of sums to invest. They will have to invest in mutual funds," said Mr Dinesh Thakkar, CMD of Angel Broking. 

"Just going to a broker (and not under a PMS scheme) will not get the investor time and involvement that a portfolio needs. So the next route available is the mutual fund, where the money is managed by an expert," he said.

Broking houses, in fact, fear that people with such sums to invest might fall prey to their own employees and franchisees' misguided or self-serving advice. 

It is typical for people with Rs 5 lakh and Rs 10 lakh who do not want to invest in mutual funds to ask brokerage employees, or branch employees or franchisees for advice on what to buy and sell. "And these employees might unnecessarily churn their investments just to earn a bit of commission themselves," said the managing director of a large broking firm. 

"Under the PMS route, however, their porfolios would be centrally administered at the brokerage. There is a portfolio manager who is accountable, and whose incentives are linked to how well the porfolios do," he said. 

'Killed by regulation'

Some brokerages say they are no longer growing their PMS business. "We do not take on any new clients for PMS," said Mr Deven Choksey, head of KR Choksey Securities. This product, anyway, is being killed by regulation, he said. 

"Firstly, PMS is not sold scheme-wise, but the reporting on it has to be done scheme-wise. Second, we can't customise the investment according to the risk profile of an investor as SEBI has capped investment in single securities. 

"So if a doctor wants to put the bulk of his money in pharma and is willing to risk it, he cannot under PMS. If we are to function like a mutual fund, then what is the point," he said.

Existing PMS customers are serviced, but new customers are given advisory services by his brokerage. 

"The low minimum investment amount of Rs 5 lakhs makes these products (referring to PMS) accessible to retail investors without the protection which are available to retail investors under the mutual fund network," said SEBI in its concept paper.

"To the extent that the services under this route resemble fund management instead of customised services, there is need to recognise and regulate them as private pool of capital," says SEBI.

So, where funds are pooled they will have to be registered as Alternative Investment Funds, and where there is customised service for each portfolio this service will come under PMS.