SEBI has proposed a new Mutual Fund-only Portfolio Management Services category to make professional investment management more accessible. By reducing the minimum investment to ₹25 lakh, the regulator aims to help mass-affluent investors. The proposal also includes updated fee caps and operational rules, with public feedback invited until August 13, 2026.
The Securities and Exchange Board of India (SEBI) has introduced a consultation paper proposing a specialized Mutual Fund-only Portfolio Management Services (MF-PMS) category. This framework aims to bridge the gap between traditional mutual fund investments and conventional portfolio management services by focusing exclusively on direct plans of mutual funds, exchange-traded funds (ETFs), and specialized investment funds. The proposal, released on July 23, 2026, is currently open for public feedback until August 13, 2026.
Impact on Entry Barriers and Capital Requirements
For investors, the most significant change is the proposed reduction in the minimum investment threshold to ₹25 lakh, half of the ₹50 lakh required for traditional PMS schemes. This is designed to attract mass-affluent investors who seek professional guidance but do not meet the high entry bar of standard PMS products. Additionally, for firms looking to enter this space, the net worth requirement is proposed to be lowered to ₹2 crore, a substantial decrease from the current ₹5 crore, which may encourage smaller investment managers to set up operations.
Fee Structures and Operational Efficiency
SEBI has suggested capping the fixed management fee at 2.5% of the assets under management. The regulator is also seeking industry views on whether performance-linked fees should be permitted in this category, given that managers are selecting mutual funds rather than individual securities. Operationally, the proposal seeks to simplify requirements by removing the need for a dedicated dealing room and making additional staffing optional. Furthermore, the proposal includes an exemption from PMS-level exit loads to prevent investors from facing dual charges on their investments.
Investor Considerations and Tax Implications
While the new category promises more professional oversight for mutual fund portfolios, investors must carefully evaluate the total cost of ownership. Beyond the MF-PMS management fee, investors need to factor in the expense ratios of the underlying mutual fund schemes. Tax efficiency is another important consideration; frequent rebalancing within a PMS structure may lead to different tax outcomes compared to holding a fund-of-funds (FoF). Industry experts have noted that while FoFs are generally more tax-efficient and accessible to all investors, the proposed MF-PMS could offer greater customization for those with more complex financial needs.
Broader Regulatory Reforms
The consultation paper also addresses the wider PMS industry, suggesting expanded investment options for conventional PMS managers. This includes potential allowances for investing in overseas listed equities, foreign debt, and overseas mutual funds, subject to existing Liberalised Remittance Scheme (LRS) limits. Additionally, there are discussions around allowing a 10% allocation to investment-grade unlisted debt and pre-listing securities to provide fund managers with more flexibility. The final implementation of these rules will depend on the feedback received during the consultation period and any subsequent circulars issued by SEBI.