New alternative emerges for small investors with PMS limit hiked to ₹50 lakh

Mumbai: In a key decision taken today, the Securities and Exchange Board of India (SEBI) hiked the minimum investment amount for investors in Portfolio Management Schemes (PMS) from ₹25 lakh to ₹50 lakh. However an fresh alternative has come up for small investors – managed portfolios by Registered Investment Advisors (RIAs) or Brokers. The most prominent example of this alternative is Smallcase, an investment platform that builds customized portfolios. Smallcase portfolios can be built by either investors themselves following a theme (such as India Reforms) or by SEBI Registered Investment Advisors (RIAs) or brokers. They do not have any minimum investment amount.

“Smallcase has an investor base of around 500,000 individuals and has 8 broker partners", said Vasanth Kamath founder and CEO of the company. “Around 50 RIAs and Brokers (and one AMC) have launched services using the platform," he added. The platform allows individual investors to design a portfolio around a theme or an RIA/broker to do so and offer it to individuals. Brokers usually offer these portfolios on their own websites and apps. RIAs on the other hand create microsites on Smallcase to launch their portfolio services. The individual concerned can then invest in the RIA managed portfolio through a broker. However the only difference between a Smallcase portfolio and a discretionary PMS is that the investor has to confirm each portfolio transaction online or over the phone. However technology has simplified this approval process to a few clicks online. In case of a non-discretionary PMS customer approval is required, bringing the two products even closer to each other.

“We launched our services in partnership with Zerodha in July 2016 and subsequently entered into associations with Axis Direct (July 2018), HDFC Securities (November 2018) and various other brokers in 2018-19 such as Edelweiss, 5Paisa and IIFL Securities," said Kamath. “Over ₹2,500 crore has been invested in Smallcases since launch," he added. However Sandeep Jethwani managing partner and head of advisory, IIFL investment Managers, dismissed concerns of Smallcase replacing traditional PMS structures due the hike in the minimum limit. “There is space for all three levels of portfolio management to coexist. At the lower end there are options like Small Case, in the middle there are formal PMS structures and at the high end there are AIFs. I don’t think one will replace the other given different execution issues like periodic client approval in case of Smallcase," he said.

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