SEBI has released a consultation paper to introduce an MF-PMS category, lowering the minimum investment ticket size to ₹25 lakh from the current ₹50 lakh. This move aims to expand access for mass affluent investors to custom portfolio services while reducing net worth requirements for managers to ₹2 crore. The proposal marks a shift in wealth management structure, potentially increasing competition between distributors and independent advisors.
Detailed Coverage
The Securities and Exchange Board of India (SEBI) has released a consultation paper outlining a new framework for 'MF-PMS' (Mutual Fund Portfolio Management Services). This proposal seeks to bridge the gap between traditional mutual funds and existing Portfolio Management Services, aiming to provide customized investment portfolios to the mass affluent segment. Data indicates that the Indian PMS industry has grown significantly, with total assets under management rising from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore by May 2026, creating a strong demand for more specialized investment vehicles.
Easing Entry and Operational Requirements
The core of the SEBI proposal involves lowering barriers for both investors and managers. Currently, entry into the PMS space requires a minimum investment of ₹50 lakh. The new MF-PMS category intends to halve this requirement to ₹25 lakh. For entities looking to operate these services, the net worth requirement is proposed to be reduced from ₹5 crore to ₹2 crore. Additionally, the regulator is looking to ease the qualification standards for Principal Officers, which could allow a wider range of investment professionals to enter the portfolio management space.
Fee Structure and Investment Scope
Under the proposed MF-PMS model, managers would be permitted to charge a flat management fee of up to 2.5% of the assets they manage. The structure also allows for performance-linked fees, provided there is explicit client consent. This shifts the revenue model for many wealth managers toward a more direct fee-based approach. The regulator is also planning to broaden the investment scope for the wider PMS industry, allowing exposure to unlisted investment-grade debt up to 10% of total assets, alongside expanded access to foreign equity and debt securities. Furthermore, the proposal includes relaxing derivative exposure limits and simplifying compliance requirements for smaller managers, such as the mandate for a dedicated dealing room.
Market Dynamics and Potential Investor Impact
These changes may significantly alter the competitive landscape for wealth management in India. Large distributors that maintain internal research desks may find it easier to launch their own MF-PMS schemes, allowing them to consolidate their market influence. For Registered Investment Advisers (RIAs), the proposal presents a potential challenge. Since RIAs currently operate on an advisory-only basis, the availability of a discretionary MF-PMS model could shift business toward managers who can execute trades directly on behalf of clients. Investors should monitor how these costs compare to existing direct mutual fund investments, as the shift toward explicit management and performance fees may lead to higher overall service costs for those who previously relied on commission-based advisory services. The final implementation of these rules will depend on the feedback received during the consultation period.