Market regulator SEBI has proposed a new Portfolio Management Service category focused solely on mutual funds and ETFs. Designed for mass-affluent investors, the plan aims to lower entry barriers to ₹25 lakh while allowing professional discretionary management. Industry stakeholders are now evaluating the impact on fees and current distribution models.
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The Securities and Exchange Board of India (SEBI) has introduced a consultation paper to create a specialized category for Portfolio Management Services (PMS) that deal exclusively in mutual fund schemes. This proposed framework targets the mass-affluent investor segment, providing a structure where portfolio managers can offer discretionary asset allocation and execution services specifically for mutual fund portfolios, exchange-traded funds (ETFs), and specialized investment funds (SIFs).
Under current regulations, portfolio managers are permitted to manage mutual fund investments, but this new category would formalize the practice under a distinct registration. A key feature of the proposal is the reduction of the minimum investment requirement to ₹25 lakh. This is lower than the standard ₹50 lakh threshold traditionally associated with many PMS offerings, potentially making professional management more accessible to a wider pool of investors.
Industry experts and associations are currently reviewing the implications of this shift. One primary concern raised by market participants involves the cost structure for end investors. Since the new category would involve paying both the management fee to the PMS provider and the underlying expense ratio of the mutual funds, investors will need to weigh the value of professional advisory against these dual costs. Additionally, there are operational hurdles, as current SEBI rules restrict clients from using distribution and MF-PMS services simultaneously, meaning distributors would need to migrate existing clients to the new structure.
There is also a broader strategic focus within the proposal to simplify compliance and offer more investment flexibility. The framework suggests allowing managers greater access to overseas securities, unlisted debt instruments, and derivative products. Some industry observers believe this could enable more Registered Investment Advisers (RIAs) to obtain a PMS license, potentially increasing the number of professional managers available to retail and affluent clients.
As the Association of Portfolio Managers in India (APMI) prepares its formal response, the industry is focused on clarifying how conflict-of-interest safeguards and client suitability standards will be implemented. Investors should monitor future circulars from the regulator, as the final guidelines will determine the fee caps, reporting requirements, and the exact operational scope of these specialized portfolio managers.