The Securities and Exchange Board of India (SEBI) has unveiled a comprehensive consultation paper outlining a significant overhaul of the regulatory framework governing portfolio management services (PMS). These proposed changes aim to broaden investment avenues, foster the growth of the PMS industry, and make professional wealth management more accessible to a wider range of investors.
Among the key proposals is the introduction of a new 'mutual fund-only PMS' (MF-PMS) framework. This specialized service would cater to mass-affluent investors seeking professional guidance for their mutual fund portfolios. To lower entry barriers, SEBI has proposed reducing the minimum client investment for MF-PMS to Rs 25 lakh, down from the current Rs 50 lakh applicable to other PMS types. Additionally, the minimum net worth requirement for MF-PMS applicants would be cut to Rs 2 crore from Rs 5 crore, alongside simplified certification for principal officers.
Expanded Investment Opportunities
The regulator plans to significantly expand the permissible investment universe for portfolio managers. Currently, PMS regulations primarily restrict investments to listed and traded securities. The new proposals aim to include:
- "To be listed" Securities: This would allow investors to gain exposure to broader market opportunities before a security is formally listed on exchanges.
- Unlisted Debt Securities: Discretionary PMS (DPMS) providers may be permitted to invest up to 10% of a client's Assets Under Management (AUM) in investment-grade, unlisted debt securities.
- Foreign Securities: PMS firms would be allowed to invest client funds in overseas securities, including listed equities, listed debt, foreign mutual funds, and Real Estate Investment Trusts (REITs) listed on recognized global exchanges. This would require explicit client consent and strict adherence to Foreign Exchange Management Act (FEMA) limits.
- Exchange-Traded Derivatives: Portfolio managers would also be permitted to invest client funds in exchange-traded derivatives, offering more sophisticated hedging and growth strategies.
The PMS industry has seen substantial growth, with Assets Under Management (AUM) surging from Rs 18.07 lakh crore in April 2019 to Rs 42.61 lakh crore as of May 31, 2026, underscoring the increasing demand for professional portfolio management.
Fee Structure for MF-PMS
For the proposed MF-PMS framework, SEBI suggests that portfolio managers be allowed to charge a fixed management fee, capped at a maximum of 2.5% of the client's AUM. In addition to this fixed fee, a performance-based fee structure would also be permissible, aligning manager incentives with client returns.
These proposed changes are part of SEBI's ongoing efforts to modernize India's capital markets, enhance investor access, and ensure a robust and evolving regulatory landscape for financial services.