The secret behind the huge growth of the PMS industry (2024)

Portfolio management services or PMS as an industry has grown by leaps and bounds in the last few years.

Data from the Securities and Exchange Board of India (Sebi) shows that the total assets under management (AUM) of the PMS industry have nearly trebled in the last seven years—rising from Rs 10.45 lakh crore in March 2016 to nearly Rs 28 crore in March 2023.

What exactly has led to this robust growth, which even dwarfs the hugely-popular mutual funds whose AUM rose nearly three-fold since March 2016 – from Rs 13.53 lakh crore to Rs 40.04 lakh crore in March 2023, as per data from the Association of Mutual Funds in India (AMFI).

Rashim Bagga, Principal Officer, Association of Portfolio Managers in India (APMI), the industry body of PMS players, attributes the growth to a combination of factors including formalisation of the Indian economy, crackdown on tax evasion leading to shift in savings habits, growing popularity & importance of financial assets and regulatory push among other things.Edited excerpts:

BT: How would you describe the growth of the PMS industry in the last few years in terms of AUM and reach?

RB: PMS industry AUM is now nearing the Rs 30 lakh crore. Keeping in mind that in 15 years PMS industry assets have grown from around Rs 2 lakh crore, the almost 15x growth in AUM in 15 years is testament to both the vibrancy of the Indian economy and the attractiveness of PMS as a medium of long-term savings for affluent Indian families.

BT: Sebi has been reviewing the regulatory framework for PMS and it is said that the enhanced focus on transparency in terms of the cost structure and performance has boosted the industry as it has given investors more confidence in the product.

RB: Sebi revamped the PMS regulations in 2020. This revamp was a major step forward for our industry in terms of making the industry more transparent (for example, Sebi mandates that PMS providers must give clients details of every single cost incurred from brokerage expenses to distribution expenses) and more investor friendly (for example, PMS providers were prohibited from giving upfront commissions to distributors). Post the revamp in regulations in 2020, both AUM and the number of PMS providers have grown sharply. If you look at the data published by Sebi, other than AIFs, no other segment of investments is growing as fast as PMS.

BT: In the last few years PMS industry has attracted a lot of investors from the non-metro locations as an increasing number of investors have been looking to invest in financial assets rather than the traditional physical assets like real estate and gold.

RB: The formalisation of the Indian economy and the crackdown of tax evasion is in general leading to a shift in savings habits. Specifically, Indian families are increasingly moving towards financial savings and away from their entrenched habits of saving through gold and real estate. To the extent that Tier 2/3 towns were even more prone to saving through physical assets (gold, real estate), the financialisation of savings and the growth on PMS assets is sharper in such locations.

BT: Going ahead, what are the 2-3 key factors that you think will further drive the growth of the PMS industry?

RB: Leaving aside the general trend towards financialisation mentioned above, the other factor which will propel growth for the PMS industry is the first cohort of Indians who began their working lives in the post-liberalisation era (i.e. post 1991). These families will approach retirement over the next 10-15 years. This cohort contains a million or so affluent families who have prospered in India over the past 30 years and these families want to have a comfortable retirement. PMS is increasingly the medium via which these affluent families are building large retirement pots.

BT: In terms of the regulatory framework, are there any key asks of the industry that, in your opinion, would help in boosting the growth of the industry? Say, in trends of disclosure or compliance norms.

RB: There more than 400 PMS providers in India (i.e. 10x more than the number of mutual fund providers in India) and this number is growing at a steady pace. The PMS Regulations 2020 give these providers a great deal of freedom in what services they offer to their clients, how they market these services and how they charge fees for their services. To the extent that no other type of savings product in India has so many hundreds of providers and to the extent no other savings product gives the provider so much latitude in packaging and marketing the product, we must be vigilant that these freedoms are used responsibly by PMS providers.

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