The Indian Portfolio Management Services (PMS) industry is at a pivotal moment, with a unique opportunity to tap into the vast potential of non-resident Indian (NRI) investors. While the industry has been thriving domestically, with assets under management (AUM) growing at a compound annual growth rate (CAGR) of 17% since FY21, the NRI segment has remained largely untapped. This is despite the fact that India receives over $140 billion annually from its overseas diaspora, and the PMS industry manages roughly Rs 10.5 lakh crore of client money. The question is, why is the NRI segment underperforming, and what can be done to address this gap?
One of the key reasons for the low NRI participation in PMS is the complex onboarding process. Opening a PMS account still typically requires a demat account and, in many cases, an NRI bank account, each governed by a different regulator. This means significant coordination and time-taken, layered on top of attestation requirements and physical signatures. The process is further complicated by the fact that some PMS providers don't onboard NRI clients based in the US and Canada at all, citing FATCA compliance complexity.
In my opinion, the PMS industry needs to take a more proactive approach to addressing these onboarding challenges. One way to do this is by implementing a single-window digital onboarding process, which would streamline the entire process and reduce the friction involved in investing through the PMS route. This would not only make it easier for NRIs to invest in India but also encourage more of them to do so.
Another important factor to consider is the tax treatment of NRI portfolio investments. India's tax treatment of NRI portfolio investments isn't yet on par with rival hubs like Singapore or GIFT City-style offshore structures elsewhere. This raises the question of why a sophisticated NRI investor would route capital through India at all rather than build a more tax-efficient structure abroad. To address this, the industry should advocate for extending GIFT City-style tax treatment more broadly to NRI capital rather than confining favourable treatment to one enclave.
Furthermore, the industry should also focus on promoting India as a global wealth management hub for NRIs. This could be achieved by highlighting the benefits of investing in India, such as the country's strong economic growth, diverse investment opportunities, and stable political environment. By doing so, the industry can attract more NRIs to invest in India and help to drive the growth of the PMS industry.
In conclusion, the PMS industry has a unique opportunity to tap into the vast potential of NRI investors. By addressing the onboarding challenges and promoting India as a global wealth management hub, the industry can encourage more NRIs to invest in India and drive the growth of the PMS industry. It's time for the industry to take a more proactive approach and make the most of this opportunity.
