Sebi lays framework for PMS investment in related party entities

By Ashley Coutinho

The Securities and Exchange Board of India (Sebi) has come out with a broad framework for investment by portfolio management services (PMS) in securities of related party entities and associates.

“The portfolio manager may make investments in the securities of its related parties or its associates only after obtaining the prior consent of the client in such manner as may be specified by the Board from time to time,” said the Sebi notification.

Further, the portfolio manager has to ensure compliance with the prudential limits on investments as may be specified by the regulator and put in place an alert based system to monitor its compliance.

Sebi is expected to come out with specifics with regard to the prudential limits and the process for seeking approval from investors for these investments soon.

The portfolio manager will not be allowed to invest clients’ funds in unrated securities of their related parties or their associates and will ensure investment of clients’ funds on the basis of the credit rating of securities.

Also read: Sebi notifies rules to enhance prudential norms for investments by portfolio managers

The manager will have to disclose details of the diversification policy and investment of clients’ funds in the securities of its related parties or associates.

“We have not seen large related-party transactions by PMS players in the last few years and the regulator seems to have taken this step as precautionary measure which is good for the industry,” said Daniel G M, founder-director at industry-tracker PMS Bazaar.