The decision is expected to be taken at the meeting of the working group on PMS on Wednesday, which is scheduled to finalise new norms based on recommendations of the sub-group consisting of representatives of Prudential-ICICI, Birla Mutual Fund and ASK-Raymond James Securities, sources told The Financial Express here on Monday. The sub-group, which has already submitted its report, was of the view that such a lock-in serves as a deterrent for the clients, as it affects the liquidity of investments.

Even this clause denies an exit option to the clients if they are not satisfied with the portfolio manager. The sub-group contended that there was no need for such a lock-in and that if felt desirable, such a clause could always be incorporated in the contract agreement between the portfolio manager and his client.

The three-member sub-group also opined that the existing restrictions on investments made by the portfolio manager were excessive requiring substantial relaxation. A few of the investments could be allowed with explicit permission from the client. But, the portfolio manager should disclose the type of investment and the risk associated with them along with overall investment guidelines.

The present norms do not allow a performance-related fee structure and as such it goes against the interests of the investors, who have to shell out the money even when their portfolios do not perform. The sub-group felt that the client should have the option whether to opt for a fixed fee or a performance related one and the structure of which should be transparent and incorporated in the agreement. There needs to be a standard model agreement as it forms the backbone of a PMS, the sub-group opined. It also suggested that risk factors be incorporated in the agreement so that the client is fully aware of the risks associated with the service.