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Dip in Earnings

The change in the minimum ticket size on PMS has seen several AMCs lose fees earned this year…

For AMCs, the past few years have been nightmarish in the backdrop of an unimpressive stock market. The focus on the PMS business has been a boon for fund houses to supplement their revenue source using the same research team and of the 44 AMCs, 17 run an active PMS business, including some big names.

But, the PMS party was checked by the Sebi in January this year when it increased the minimum investment limit in the PMS scheme to Rs 25 lakh per client from Rs 5 lakh. The move left PMS out of reach of several investors and many existing PMS were forced to exit, resulting in the drop of earnings for AMCs. Moreover, the rise in the markets earlier this year encouraged several PMS investors to book profit and exit their investments.

The lure of PMS always gets accentuated when markets rise despite its several shortcomings. For instance, PMS does not have the necessary scale to benefit from a large investment corpus, which limits it from being choosy about picking stocks compared to a mutual fund manager. There is also the issue of accountability, especially when the fund manager is responsible to few investors. The lack of clear benchmarks and the charges levied also make them not very investor-friendly.

Not all is lost

The PMS business has witnessed both ups and downs in revenue earnings over the past 3 years, owing to the state of the markets. Despite the changes, some AMCs did earn more in 2012 compared to 2011. Collectively, AMCs earned Rs 251 crore from the PMS business in 2012 compared to Rs 310 crore in 2011, a fall of 19 per cent. Among the lot, only HDFC, LIC Nomura, Sundaram and Tata witnessed increase in income between 2011 and 2012. AMCs like L&T and Motilal Oswal, which entered the PMS business in 2011, did well despite the regulatory changes and earned significantly higher sums.