SEBI has introduced a proposal for a new 'Mutual Fund-only' Portfolio Management Services (MF-PMS) category, reducing the entry threshold from ₹50 lakh to ₹25 lakh. The plan, open for public feedback until August 13, 2026, aims to widen access to professional advice while shifting the business model towards direct fee-based management rather than commission-led models.
The Securities and Exchange Board of India (SEBI) is working on a major structural change for the portfolio management industry. In a consultation paper released on July 23, 2026, the regulator proposed a dedicated 'Mutual Fund-only' Portfolio Management Services (MF-PMS) category. This move is designed to make professional investment management more accessible to mass-affluent investors who may find current high entry barriers difficult to navigate.
A primary feature of this proposal is the reduction of the minimum investment ticket size to ₹25 lakh, significantly lower than the current ₹50 lakh required for traditional PMS. Additionally, SEBI has proposed lowering the net worth requirement for entities wishing to launch such services from ₹5 crore to ₹2 crore. By easing these entry hurdles, the regulator aims to bring more players into the wealth management space and increase competition among service providers.
The Shift in Business Models
The most significant impact of this proposal lies in how it changes the underlying business model for wealth managers. Unlike traditional PMS, which often involves direct stock or bond picking, the proposed MF-PMS structure restricts portfolios to direct plans of mutual funds, Exchange Traded Funds (ETFs), and specialized investment funds. Because the framework relies on direct plans—which do not pay distributor commissions—the model essentially forces a shift away from the traditional trail commission-based income for advisors.
Under the proposed rules, portfolio managers can charge a management fee capped at 2.5% of the assets under management. This is a structural pivot toward a fee-only advisory model. While this increases transparency by making fees explicit to the investor, it also disrupts the existing revenue stream for many distributors who rely on commissions from 'regular' mutual fund plans. Investors will need to weigh whether the 2.5% management fee, in addition to the expense ratios of the underlying mutual funds, provides enough value compared to standard mutual fund investments or existing PMS strategies.
Risks and Considerations
While the proposal aims to 'democratize' professional management, it introduces new dynamics for investors to watch. The move risks creating confusion between standard mutual fund investing and this new, regulated wrapper. Investors may struggle to differentiate between a simple mutual fund portfolio and an MF-PMS that charges an additional management fee. Furthermore, there is the risk that aggressive marketing could push investors toward these managed portfolios even when a standard, lower-cost mutual fund approach might be sufficient for their goals.
With the consultation period for public comments ending on August 13, 2026, the industry is bracing for how these rules will finalize. The next phase will depend on how the regulator balances this push for broader access with the need to protect investors from potential fee layering and complex product structures. Investors should monitor the final notification from SEBI to understand how fee structures will be implemented and whether the, as yet, finalized regulations will include specific disclosures regarding the total cost of ownership for these portfolios.