Confusion over new rules on standardised return metrics for PMS players

A move to provide standardised returns across may be experiencing some teething troubles.

Lack of granularity in the regulations has some portfolio management service (PMS) providers scrambling to figure out how they should be showcasing their returns, according to at least three people familiar with the matter. This included a portfolio manager, a distributor and a service provider to the industry.

They are looking for clarity on how it should be approached and are in the process of seeking advice from the (Sebi) on the matter, according to industry sources.

The move follows the publication of the revised portfolio manager regulations last month. It looked to change a few things about how are governed, such as increasing the minimum investment size to Rs 50 lakh and raising the minimum networth for PMS players from Rs 2 crore to Rs 5 crore. It also made changes to the way that returns are shown.

“…the performance of a discretionary portfolio manager shall be calculated using ‘Time Weighted Rate of Return’ (TWRR) for the immediately preceding three years and in such cases performance indicators shall also be disclosed,” said the (Portfolio Managers) Regulations, 2020.

A service provider pointed that there is more than one way in which TWRR can be calculated. Clarity on methodology can ensure that any marginal differences are ironed out.

“….We just want to make sure that there is no decimal point difference also because (at the) end of the day you want to compare apples to apples,” said one person.

Another person said that a working committee report on the matter had mentioned a standardised format. The regulator could operationalise it through a circular so that there is no scope for creative interpretation which may favour certain providers.

should come out with a template…that will ensure that entire confusion (is taken care of),” said the second person.

The report had noted the multiplicity of reporting standards that exist for PMS providers.

“Currently, there are wide divergences across PMS providers with regards to the way performance is reported to existing clients, prospective clients and to Non-standard reporting formats make it very difficult for prospective clients to compare performances of the PMS providers and make informed decisions with regards to the choice of their PMS provider,” the report had said.

An email sent to the regulator did not immediately receive a reply.

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