The Securities and Exchange Board of India (Sebi) has proposed a mutual fund-portfolio management services (MF-PMS) category with reduced investment threshold and compliance norms. The proposed framework is expected to boost investor and intermediary participation, writes Kushan Shah

What is a PMS?

Portfolio management services or PMS are customised investment solutions designed for high net-worth individuals. Since 2021, a minimum investment of Rs 50 lakh is required to avail these specialised investment solutions. Due to its customised nature, clients pay performance-based fees and can impose minimum performance benchmarks.

PMS is offered in two modes: discretionary where the portfolio manager is given the authority to make all investment decisions and non-discretionary mode where the portfolio manager is required to take consent from the client for any investment decision. Discretionary PMS can invest in listed stocks, bonds, commodities while non-discretionary PMS is allowed to invest up to 25% of assets in unlisted equity.

Sebi has also proposed to allow discretionary PMS to invest up to 10% of their assets in investment grade unlisted debt securities. While PMS potentially offer a lot of flexibility and liquidity because of their structure, the PMS investor incurs tax liabilities on gains arising from each portfolio churn during the investment period.

What is MF-PMS?

MF-PMS is a new framework proposed by Sebi to effectively serve mass-affluent investors who seek professional portfolio management services for their mutual fund investments. Unlike conventional PMS, MF-PMS will invest only in direct plans of mutual funds, exchange traded funds (ETFs) and specialised investment funds (SIFs). The minimum investment threshold has also been reduced from 50 lakh to 25 lakh.

What this means for portfolio managers

The New York framework reduced the minimum net worth requirement for portfolio managers from 5 crore to 2 crore, allowing in smaller registered investment advisers and distributors. Apart from this, Sebi has eased compliance requirements making additional employees and a dedicated dealing room optional. It has also proposed a simplification in the format and requirements of disclosures. The certification for principal officer has been proposed to be simplified along with a reduction in qualification and experience mandates.

How will the new framework apply to distributors and advisers?

Mutual Fund distributors registered under the MF-PMS framework will be required to maintain an arm’s length relationship between their activities in MF-PMS and their activities as a mutual fund distributor through a separately identifiable department or division.

The distributors will also be required to have client-level segregation for their services in MF-PMS and mutual funds. Thus, the distributors will not be allowed to offer mutual funds and MF-PMS services to the same client under the same entity. The regulator has also clarified that existing portfolio managers will be able to offer MF-PMS through separate products launched under the MF-PMS framework.

What will be the charges levied on investors?

The regulator has proposed to allow portfolio managers to levy a fixed management fee, up to 2.5% of the client’s assets under management. Apart from this, portfolio managers can levy a performance-based fee or a combination of fixed and performance-based fee with the consent of the client.

The regulator has also proposed to waive exit load on MF-PMS to protect investors from double-charging of exit loads at the underlying mutual fund level along with the MF-PMS.

Likely benefits of new framework

The MF-PMS framework could broaden access to portfolio management as investors in the Rs 25-50 lakh fund range can now utilise the services of a professional portfolio manager. MF-PMS is also expected to be more tax-efficient compared to the conventional PMS since investments in mutual funds and SIFs will not be taxed for portfolio churn.

The move is expected to boost inflows in direct plans of mutual funds and SIFs. The reduced net-worth and compliance norms are expected to bring in smaller advisers. The move is also expected to increase accountability among distributors and make the fee-based advisory model more popular. Sebi has expressed the hope that it will foster a more accessible and inclusive professional investment landscape.

How big is the PMS industry?

As of June 2026, the PMS industry manages 43.26 lakh crore. However, a high proportion of these assets (32.44 lakh crore) are from PF/EPFO investments made by employers in permissible securities. Non-EPFO assets of the industry are close to Rs 10.82 lakh crore.

The industry has 526 portfolio managers with a distributor network in excess of 20,000. According to the Association of Portfolio Managers in India, the biggest portfolio managers include 360 ONE Portfolio Managers, Aditya Birla Sun Life Asset Management, Enam Asset Management, ICICI Prudential Asset Management and Avendus Wealth Management among others.

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