Direct Access Facility Offered by PMS

Direct Access Facility (DAF) is a service provided by a registered Portfolio Manager that enables the client to place buy‑sell orders directly through an online platform, while the PMS continues to provide advisory, monitoring, and reporting services.

Unlike a fully discretionary PMS where the manager decides every trade, DAF gives the investor control over trade timing and selection, yet the portfolio remains under the PMS umbrella for compliance, risk‑management and performance tracking.

For the NISM exam, remember that DAF is classified as a non‑discretionary PMS product, but it is distinct from the traditional “non‑discretionary PMS” where the client merely conveys instructions without a dedicated trading platform.

• Control – Investor initiates the trade.
• Support – PMS provides research, risk limits, and post‑trade reporting.

SEBI (Portfolio Managers) Regulations, 2021, specifically recognise Direct Access Facility as a permissible mode of service for a Portfolio Manager registered under Category I or II. The regulations require the PMS to obtain explicit consent from the client before offering DAF.

Key regulatory requirements include: (i) a separate agreement outlining the DAF terms, (ii) a detailed risk‑profiling questionnaire, (iii) real‑time order‑execution reporting, and (iv) periodic performance statements that clearly separate advisory fees from transaction costs.

Non‑compliance can lead to penalties under SEBI (Portfolio Managers) Regulations, making it a high‑frequency exam topic.

Step 1 – The investor logs into the PMS‑provided DAF portal, reviews the research notes, and places an order specifying security, quantity, and price limits.

Step 2 – The order is routed through the PMS’s broker‑dealer partner. The Portfolio Manager monitors the order against the client’s risk limits and may intervene if the trade breaches predefined parameters.

Step 3 – Once executed, the trade details are reflected in the client’s portfolio view in real time. The PMS generates an execution report within 24 hours, which the client can download for record‑keeping.

Step 4 – At month‑end, the PMS prepares a consolidated statement showing portfolio performance, fees charged, and any cash movements, ensuring full transparency.

DAF offers investors the flexibility to act on market opportunities instantly, which is especially valuable in volatile Indian equity markets where timing can affect returns.

Because the Portfolio Manager still oversees risk limits, the investor benefits from professional oversight without surrendering trade‑execution control.

Transparency is enhanced: every trade is visible in the portal, and the client receives itemised transaction cost details, aiding better cost‑benefit analysis for the exam.

• Customization – Investors can tailor the portfolio to personal tax or ESG preferences while staying within the PMS framework.
• Learning Opportunity – Active participation helps investors understand market dynamics, a point often highlighted in scenario‑based questions.

Performance of a DAF portfolio is measured using the same metrics as any PMS – primarily the Holding‑Period Return (HPR) and the Net Asset Value (NAV) per unit.

The NAV per unit reflects the total market value of the portfolio, cash, and liabilities, divided by the number of units issued to the client. This figure is updated daily and forms the basis for calculating returns.

For the exam, be prepared to compute NAV and then derive the percentage return over a period, remembering to adjust for any cash inflows or outflows during the holding period.

DAF fees are usually split into three components: (i) a modest management fee (often 0.5‑1.5% of AUM), (ii) a performance fee calculated on profits exceeding a hurdle rate, and (iii) transaction costs charged by the broker.

Unlike discretionary PMS, there is no fixed advisory charge for each trade; instead, the brokerage fee is passed through to the client, making the overall cost structure more variable.

Understanding the fee breakup is crucial for NISM questions that ask you to compute net returns after deducting fees.

Many candidates forget to adjust the management fee for the exact holding period; always prorate annual fees to the months the portfolio was active.

Another frequent error is treating brokerage as part of the management fee. In DAF, brokerage is a separate, pass‑through cost and must be deducted after calculating the performance fee.

Finally, overlooking the requirement of explicit client consent for DAF can lead to a wrong answer when a question asks about regulatory compliance.

Direct Access Facility bridges the gap between full control and professional oversight, making it a popular choice for sophisticated Indian investors. It operates under a clear SEBI framework that emphasizes consent, risk profiling, and transparent reporting.

Key operational steps include client‑initiated order placement, PMS monitoring for compliance, real‑time execution reporting, and monthly performance statements. Understanding the fee structure and NAV calculation is essential for accurate net‑return computation.

By remembering the exam traps and the formula for NAV, candidates can confidently tackle both definition‑type and scenario‑based questions on DAF.