MUMBAI: Capital market regulator the (Sebi) is vetting a proposal to raise the minimum investment limit for (PMS) schemes and venture capital (VC) funds to Rs 10 lakh for high net worth individuals (HNIs), which could further raise the entry bar for those hoping to assign the task of managing their investible surplus to wealth managers.
“There is a thinking whether to redefine high net worth individual from Rs 5 lakh to a higher minimum ticket size, as the current definition came into effect long time ago. We haven’t reached any conclusion as yet,” said a Sebi official familiar with the development.
Sebi’s rules on PMS and VC funds define as one who invests up to Rs 5 lakh and more. If the existing limits are revised, it will also allow wealth managers to handle the accounts of a lower number of investors by offering better services and focused attention, according to portfolio managers.
The total wealth in India held by individuals is estimated to be Rs 73-lakh crore and is expected to double over the next three years to Rs 144- lakh crore, according to the latest India Wealth Report, released by Karvy Private Wealth.
“Portfolio management schemes, unlike mutual funds, are more of a mature product for investors who have enough wealth and a risk-taking capacity. So, increasing the limit is very necessary, so that people, who don’t understand volatility and risk, don’t enter through this route,” says Mohit Batra, Group CEO, Alchemy Capital Management.” Over the past few years, the number of HNIs and their wealth in India have gone up substantially and Rs 5 lakh still remains a very low threshold limit. If a client has Rs 2-3 crore investible surplus, he should be investing 10-15% in equity through the PMS route. So, I believe that PMS as a product should have a threshold limit of not less than Rs 25 lakh,” he said.
Portfolio management service providers offer similar services such as and hedge funds. In recent times, many Indian private equity fund managers have raised funds locally, thanks to the increasing number of ultra-HNIs and growing surpluses with banks, insurance companies and family offices.
“The penetration of HNIs is very low in venture capital funds,” said Bharat Banka, MD, Aditya Birla Private Equity. The firm raised its entire $200-million fund from the domestic market.
Last month, Sebi had proposed to double the investment limit for retail investors in public offerings to Rs 2 lakh for each application from the current Rs 1 lakh.
The regulator had said since the rate of inflation has nearly trebled to 12% over the past five years, retail investors now buy lesser number of securities when they invest Rs 1 lakh than they would have with the same amount in 2005.
“We see a shift in the way individual wealth in India will be invested across asset classes by 2012-13. This is due to various factors such as a promising GDP growth rate, better understanding of newer & better investment avenues, better financial literacy and a large young educated population,” the Karvy report said.
According to Sebi data for 2009, there are 247 portfolio managers registered with the regulator, managing around Rs 2.71-lakh crore. Of this, Rs 2.35-lakh crore is invested in debt schemes, Rs 30,000 crore in equity, and Rs 6,000 crore in other investment schemes.
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