SEBI has released a consultation paper to introduce a 'mutual fund-only' Portfolio Management Services (PMS) framework, lowering the minimum entry barrier to ₹25 lakh. This move aims to expand professional investment management to a wider segment of mass-affluent investors while streamlining net worth requirements for new managers.
Detailed Coverage
The Securities and Exchange Board of India (SEBI) has introduced a new consultation paper detailing a specialized framework for mutual fund-only Portfolio Management Services. By proposing a reduction in the minimum investment threshold to ₹25 lakh from the current ₹50 lakh requirement for standard PMS, the regulator aims to attract more middle-income investors into the professional wealth management space. This change is designed to simplify the entry process for both investors and smaller investment firms.
Easing Entry Requirements and Operational Norms
Under the new proposed rules, SEBI intends to lower the net worth requirement for entities wishing to offer these mutual fund-only services. Companies would need a net worth of ₹2 crore, a significant decrease from the ₹5 crore mandate currently required for standard PMS providers. This adjustment is expected to encourage more players to enter the sector, potentially increasing competition and service options for clients. The model focuses exclusively on managing direct plans of mutual fund schemes, providing a structured approach for those who want professional oversight without the complexity of direct stock picking.
Expanding Investment and Derivative Scope
Beyond lower entry barriers, the regulator is looking to broaden the investment flexibility for portfolio managers. The proposals include allowing exposure to overseas securities, provided they stay within existing Foreign Exchange Management Act (FEMA) and Liberalised Remittance Scheme (LRS) limits. Furthermore, discretionary portfolio managers may be permitted to allocate up to 10% of their client’s total assets to investment-grade unlisted debt securities. To manage market risk, the framework suggests allowing derivative exposure up to 1.25 times the assets under management, with specific guidelines on how to handle unhedged short positions and options premiums.
Industry Growth and Fee Structures
The PMS industry in India has experienced rapid expansion, with assets under management rising from ₹18.07 trillion in April 2019 to ₹42.61 trillion by May 31, 2026. To support this growth, the proposal outlines a clearer fee structure, allowing fixed management fees of up to 2.5% of assets under management. It also permits the inclusion of performance-based fees, aligning the interests of the manager with the investor.
Investors and industry participants should now monitor the next steps in this consultation process, specifically the final notification from the regulator after reviewing public comments. The actual rollout of these services will depend on the final rules regarding compliance and operational reporting that SEBI may mandate for these new mutual fund-only PMS providers.