Investor Issues
Investors kept in the dark and hard-sold poor PMS schemes, due to bad disclosure practices

Many PMS companies, including the big ones are not complying with SEBI’s directives on disclosure of performance data. As usual, investors bear the brunt of the poor disclosure in a disclosure-based regime

There are 253 portfolio management services (PMS) companies registered with the Securities and Exchange Board of India. According to circular issued by Securities and Exchange Board of India (SEBI) in 2010, they have to upload the disclosure document online.
 

The SEBI circular IMD/DF/16/2010, dated 2 November 2010, clearly says, “To ensure compliance with Regulation 14(2)(b)(iv) of SEBI (Portfolio Managers) Regulations, 1993, portfolio managers shall disclose the performance of portfolios grouped by investment category for the past three years as per the enclosed prescribed tabular format. Portfolio Managers shall also ensure that the disclosure document is given to all clients along with the account opening form at least two days in advance of signing the agreement. In order to ensure that the clients have access to updated information about the portfolio manager, portfolio managers shall place the latest disclosure document on their website, wherever possible”
 

However, most PMS companies are flouting the regulation, as we found out in our continuing research on PMS performance and disclosure. Moreover, companies, which have uploaded the disclosure documents, have kept it well hidden on their website and only the most ardent techie could locate the file. We also found that some documents were not updated at all and many were outdated. When Moneylife asked these companies about their performance, many replied saying that they will disclose the information only to clients and not to the public.
 

We studied all the data available on SEBI’s website  and here are some of our key findings:

  • There are a total of 253 companies. Moneylife filtered only those PMS companies which have more than average of Rs10 crore of discretionary assets under management (AUM) and found that only 46 companies fit the bill.
     
  • We decided to look up the websites of all the selected 46 companies, out of which 26 companies’ disclosure documents are available on their website while the following list of 17 companies haven’t put up their disclosure document in public domain.

 

 

Companies that have not uploaded disclosure documents

No. NAME

Average AUM
(Jan 13 – May 13)

(Rs in Cr)

1 HDFC ASSET MANAGEMENT COMPANY LTD 1592.58
2 ENAM ASSET MANAGEMENT COMPANY PVT LTD 742.55
3 ALCHEMY CAPITAL MANAGEMENT 618.96
4 ANAND RATHI FINANCIAL SERVICES 171.78
5 AVENDUS PE INVESTMENT ADVISORS PVT LTD 156.01
6 ASK INVESTMENT MANAGERS 136.49
7 KOTAK SECURITIES 72.84
8 RELIANCE SECURITIES 70.53
9 RELIANCE WEALTH MANAGEMENT 70.53
10 BIRLA SUNLIFE ASSET MANAGEMENT COMPANY LTD 48.96
11 MORGAN STANLEY INDIA FINANCIAL SERVICES 38.23
12 AMBIT CAPITAL 17.99
13 DARASHAW & COMPANY LTD 17.94
14 DEUTSCHE INVESTMENTS INDIA PVT LTD 16.84
15 KISAN RATILAL CHOKSEY SHARES AND SECURITIES 15.46
16 ENVISION CAPITAL SERVICES PVT LTD 14.43
17 SYSTEMATIX SHARES AND STOCKS (INDIA) 11.09

 

  • Companies are required to mandatorily disclose all statistical information in three categories—discretionary services, non-discretionary services and advisory services—followed by information on complaints received & resolved during the year. Most of the companies don’t provide any information except discretionary services.

 

  • Some of them provide access only to their existing clients. When we asked them for the disclosure document which should be accessible in public domain as per SEBI’s circular, some of big PMS Service providers like HDFC asset Management Company, Alchemy Capital Management Pvt Ltd and Avendus PE Investment Advisors Pvt Ltd refused to disclose it to us as a matter of confidentiality. While the SEBI circular emphasizes PMS companies to be more transparent for the benefit of the investors, the companies want to preserve their confidentiality!

 

  • Even if companies uploaded their disclosure documents on their website, most of them are not easily accessible in a user-friendly manner. For that one needs to be tech-savvy.

 

  • Some of these companies have old disclosure documents showing old financials. They haven’t submitted the most up to date disclosure documents to SEBI.

 

Portfolio management companies are offering many untested & complicated schemes with big amounts as their minimum capital required (minimum capital required is Rs25 lakh). Since it involves a lot of money, investors need to do lot of research prior to making a decision. They need access to historical performance, drawdown and volatility of returns, etc. Unless information pertaining to PMS is put up properly, investors will continue to find it difficult to decide which PMS to invest in and make an informed decision. This situation is of course tailor-made for distributors to mis-sell. The less there is comparative information, the easier it is to fool the investors with sales talk. However, most of these portfolio companies give you the disclosure document only AFTER you become a client and not BEFORE. We had given an example of Prime Securities, over here:
 

Moneylife has been crusading to bring transparency in PMS offered by various portfolio managers, brokers, financial institutions and AMCs. This started with Moneylife’s RTI request for PMS data disclosure, which was turned down by Sebi.
 

We then appealed against SEBI’s decision to with the Central Information Commissioner (CIC) which ruled that SEBI has to upload data of PMS schemes onto its website.
 

We recently filed a Right to Information (RTI) application requesting SEBI to disclose all the information that they had put up on their creepingly slow website on a CD. Shockingly, they refused to give the same, citing that such a thing would lead to “diversion of public resources”, which is actually Section 7(9) of the RTI Act, 2005. It is pertinent to note that an RTI can only be refused under Section 8(1) and 9 of the RTI Act, 2005. The exclusive story can be accessed here.
 

You may want to read our other stories on PMS…
 

SEBI’s system of reporting PMS data continues to be frustratingly anti-investor

Kotak PMS: Among the worst in the business?

Portfolio Management Schemes leave investors with a big hole in their pocket

Wake-up call for regulators.

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COMMENTS

R Balakrishnan

4 years ago

If Mr UK Sinha is a honest guy, he should be cancelling all capital market licenses of the above crooks. They are crooks because they hide what they have done.

ashwin bahl

4 years ago

SEBI is sorry to say toothless, it has been proven time and again, and what is needed- hefty fine that hurt for such malpractices ! But will it ever happen? Nope!

arun adalja

4 years ago

sebi must fine those who have not updated the information.they want all information from us when we go to them and they keep mum on vital information.

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Greenply Industries Q1 net profit up 25.6% on robust sales

For the June quarter, Greenply, the country’s largest interior design company, has reported positive results amidst economic uncertainty. Both sales and net profit increased by 11.6% and 25.6%, respectively. The stock has caught the fancy of foreign institutional investors

Greenply Industries has reported 11.60% year-on-year (y-o-y) increase in net sales to Rs480.49 crore for the quarter ended 30 June as against Rs430.53 for the corresponding period last year. Its EBITDA grew 14% from Rs37.50 crore to Rs42.85 crore for the first quarter of the 2013-14 fiscal. Greenply’s net profit stood at Rs22.56 crore, up an impressive 25.61% y-o-y. Most of the revenues came from the company’s plywood division which contributed to nearly half, or Rs228.24 crore, of the company’s revenues. Laminates and allied products contributed to Rs175.11 crore or 36% of the total revenues. The company has three segments: plywood, laminates and medium density fireboards (MDF).
 

With regard to its new MDF manufacturing unit in Andhra Pradesh, the company has completed acquisition of land in Chittoor District, and necessary steps are being taken to obtain various statutory approvals and licenses to setup the unit. Meanwhile, civil construction works has been completed in the company’s MDF unit in Pantnagar, Uttarakhand. Orders for all major machineries have been placed and are in the process of being installed. In its existing manufacturing unit in Behror, Rajasthan, Greenply has completed acquisition of land adjacent to the plant and placed a purchase order for imported equipments.
 

There are several plywood manufacturers but Greenply has caught the fancy of foreign institutional investors (FIIs). As of June 2013, FIIs’ holding was 13.21%, higher than the 7.67% recorded in March 2013. The promoters hold 55% while domestic institutional investors hold 5.81%; retail shareholding is 25.98%
 

Moneylife had written about this stock earlier and the story can be accessed here
 

Greenply Industries closed Tuesday 1.6% down at Rs498.25 despite reaching its 52-week high of Rs524 on the BSE, while the benchmark Sensex ended the day marginally up at 20,302.

 

For more news on earnings, check out this page

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