SEBI has released a consultation paper for a new Mutual Fund-only Portfolio Management Service (MF-PMS) framework. The proposal reduces the minimum investment requirement to ₹25 lakh and allows registered investment advisers to build portfolios using mutual funds and ETFs. This move aims to broaden access to professional wealth management for mass-affluent investors in India.
Detailed Coverage
The Securities and Exchange Board of India (SEBI) has introduced a proposal to create a new category of portfolio management services specifically for mutual fund investments. Under this proposed MF-only Portfolio Management Service (MF-PMS) framework, the minimum investment threshold would be halved to ₹25 lakh, down from the current ₹50 lakh requirement for standard Portfolio Management Services. This change is designed to make professional wealth management services more accessible to a wider segment of investors.
Expanding Investment Options for RIAs
The proposed framework would allow registered portfolio managers and investment advisers to build customized asset allocation strategies using only mutual funds, Exchange Traded Funds (ETFs), and Specialised Investment Funds. By limiting the underlying investments to these instruments, the regulator aims to provide a structured advisory model that avoids the complexities and risks associated with direct equity stock picking. This move effectively bridges the gap between traditional mutual fund distribution and high-end portfolio management, potentially allowing advisers to offer more tailored services to their clients.
Regulatory Safeguards and Fee Caps
To address concerns regarding potential cost overlaps, SEBI has proposed specific guidelines on fees. The consultation paper suggests capping fixed management fees at 2.5% of the total assets under management. Furthermore, the regulator has proposed that any performance-based fees must receive explicit consent from the client. To prevent double-charging or excessive costs, the framework also considers exempting these services from existing exit-load provisions that apply to standard PMS products. These measures are intended to ensure transparency and protect investor interests as the advisory sector evolves.
Impact on the Advisory Sector
The introduction of a distinct registration process with simplified compliance and lower net-worth requirements is expected to encourage more professionals to enter the advisory space. Industry leaders have noted that such reforms could help formalize the wealth management experience for those who do not currently meet the higher net-worth requirements of traditional PMS offerings. By streamlining the structure for firms that operate exclusively within this segment, the regulator is attempting to reduce the entry barriers for new advisory entities.
Investors and market participants should monitor the final regulations, which will be drafted after SEBI evaluates feedback from the industry and the public on this consultation paper. Key areas to watch include the final fee structures, the specific registration requirements for advisers, and the transition rules for existing portfolios, as these will determine how quickly this new investment option becomes available to the public.