How & why portfolio management services are catching in India, data, statistics, and the future of portfolio management services.
In 2021, investors were looking at options beyond the traditional investment routes for higher risk-adjusted returns. AUM (Assets Under Management) of the portfolio management industry rose nearly 17% from 21.77 lakh cr to Rs 25.4 lakh crore from July 2021 to July 2022, according to the SEBI(Securities and Exchange Board of India).
The total size of Portfolio Management Services (PMS) in India witnessed a healthy rise of 23.2% YoY, with assets growing to Rs 4.89 lakh crore from Rs 3.97 lakh crore.
Portfolio management services are catching up in India at a fast pace. In the financial year 2021, the Securities and Exchange Board of India (SEBI) registered 1,334 investment advisors at the three stock exchanges NSE, BSE, and MSEI. The number of wealth managers, including portfolio managers, investment advisors, and research analysts has grown significantly and nearly doubled over the last four years.
As of July 2022, there were 1.45 lakh clients in the portfolio management industry, of which 1.36 lakh clients were in the discretionary services category, 6,933 clients in the non-discretionary services category, and 1,934 clients availed of advisory services of portfolio managers from the portfolio management firms.
Data as of June and October 2022 shows that AIFs(Alternative Investment Firms) witnessed a staggering growth of 42.5% YoY(Year on Year), with assets growing to Rs 6.94 lakh crore (from Rs 4.87 lakh crore) across all three categories.
Going ahead, the trend was positive for that fiscal year with Portfolio Management Services(PMS) being accepted by a wider customer segment, including retail. The asset base was Rs 24.8 lakh crore at the end of June 2022. Of the total AUM, Rs 18.6 lakh crore were contributed by funds from EPFO or PFs(Provident Funds).
Why and how did portfolio management firms and services grow so rapidly?
India is primarily a domestic demand-driven economy with a young working-age population. After the Indian equities bull run in CY2021, and because of services export opportunities & the domestic demand potential, India emerged as an attractive investment destination leading to significant growth in AUM(Assets Under Management) for PMS (Portfolio Management Services).
According to Abhay Agarwal Founder & Fund Manager of Piper Serica, the increase in AUM(Assets Under Management) of the PMS (Portfolio Management Services) industry is in line with the recovery in broad markets and heightened interest from HNIs (High Networth Individuals), UHNI (Ultra High Networth Individuals), and family offices in PMS structures. PMS (Portfolio Management Services) have emerged as a product of choice for investors who are looking beyond mutual funds to generate long-term alpha returns.
Moreover, SEBI(Securities and Exchange Board of India) has made the PMS(Portfolio Management Services) investments very transparent through its compliance and reporting requirements, which has also increased the confidence of investors.
The rise in demand for portfolio management services and portfolio management firms is largely on account of unique products, transparency in fund management, and higher market penetration.
The reasons for growth in the AUM(Assets Under Management) of the portfolio management firms and services are more structural like the increase in the middle-class population, increase in financial savings, relative unattractiveness of traditional asset classes like real estate and bank deposits, and awareness campaigns run by the portfolio management industry in the past few years.
In line with the growth of wealth, the ‘alternates’ space has been
evolving rapidly to meet the requirements of the burgeoning UHNI(Ultra High Networth Individuals ) segment. One can understand the potential of this industry if one just looks back at China in 2007, which was at a similar stage of evolution in terms of the financial landscape, Jeloka of Sanctum Wealth said.
Unlike an AIF(Alternative Investment Fund) and mutual fund, the PMS (Portfolio Management Services) as a product are highly customizable for the requirement of the investor. Also, by choosing between non-discretionary and advisory Portfolio management services, it is possible to come up with various fee options that vary from fully fixed fees to fully variable fees.
The future of PMSs(Portfolio management services).
With the faster pace of Indian economic development (reaching the GDP mark of $3 trillion in 2021, back from $1 trillion in 2007), the range of investable asset classes is getting wider, which looks attractive and opportunistic in the eyes of fund managers and investors.
“With new-age alternates, excellent disclosures, a supportive regulatory environment, and robust returns from newer investment avenues, the stage is set for the prosperous to take their wealth to the next level as India marches towards becoming a $5 trillion economy,” said Daniel G M Founder –Director PMS Bazaar.
According to PMS Bazaar, PMS(Portfolio Management Services) & AIF(Alternative Investment Firms) assets are set to expand rapidly, and AUM (Assets Under Management) will grow from Rs 12 lakh crore to Rs 30 lakh crore in 3 years.
At the very least, the portfolio management industry and the best portfolio management services have the potential to grow 3x in the next five years, in line with the growing aspirations of a wealthy India.
Experts believe that PMS is emerging as a strong alternative to growing wealth and investment. PMSs benefit from greater flexibility compared to mutual funds after SEBI(Securities and Exchange Board of India) tightened the categories and definitions. This also helps them deliver a superior return and allows them to move between categories based on the market outlook. Several PMS schemes have done better than mutual funds, which have attracted interest from investors.
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