SEBI Eyes Rs 25 Lakh Mutual Fund PMS for Wider Investor Access

The Securities and Exchange Board of India (SEBI) has initiated a significant regulatory review of the Portfolio Managers Regulations, 2020, proposing the biggest changes to India’s Portfolio Management Services (PMS) industry since 2020. Central to this proposal is a new ‘mutual fund-only PMS’ framework, designed to expand access to professional investment management.

This dedicated framework will manage direct plans of mutual fund schemes, including exchange-traded funds (ETFs) and specialised investment funds (SIFs). Its primary goal is to make professional portfolio management more accessible to a wider range of investors.

Introducing Mutual Fund-Only PMS

• Minimum investment reduced from Rs. 50 lakh to Rs. 25 lakh.
• Net worth requirement for managers lowered from Rs. 5 crore to Rs. 2 crore.
• Fixed management fees capped at 2.5% of the client’s assets under management (AUM).

Portfolio managers operating under this new framework will also benefit from simplified certification processes, the option for dealing rooms, and a waiver of exit load provisions. They can charge a fixed management fee, a performance-based fee, or a combination, all with explicit client consent.

Expanding Investment Horizons

Beyond the new mutual fund-only category, SEBI’s paper also suggests broadening the investment options available to all PMS clients. This aims to provide managers with more tools to construct diversified portfolios.

• Investment in ‘to-be-listed’ securities.
• Discretionary PMS can allocate up to 10% of client assets to investment-grade unlisted debt securities.
• Access to foreign securities, including listed equity, listed debt, and overseas funds investing in listed securities or overseas-listed REITs, subject to FEMA, 1999, and client consent.

Flexible Derivatives Framework

The proposals also introduce greater flexibility for portfolio managers in using derivatives, allowing for more dynamic risk management strategies. These changes are contingent upon mandatory client consent.

• Total exposure up to 1.25 times client assets through exchange-traded derivatives.
• Unhedged short exposure capped at 50% of AUM via equity derivatives.
• Option premium exposure limited to 10% of AUM.

Streamlining Compliance for Managers

SEBI’s review includes several measures aimed at simplifying compliance for portfolio managers. These adjustments seek to streamline operational processes and reduce administrative burdens.

• Digital sharing of disclosure documents.
• Revised filing timelines and extended corporate governance report timelines.
• Demat account portability across portfolio managers and relief from obtaining fresh power of attorney.
• Dealing room requirements may be waived for managers with fewer than 10 clients or an AUM below Rs. 100 crore.

Existing clients who currently meet the grandfathered Rs. 25 lakh minimum investment threshold will have 36 months to comply with the new Rs. 50 lakh threshold, with the exception of MF-PMS clients. This comprehensive review is driven by the significant growth observed in the PMS industry and the rising demand for more personalized investment solutions. Public comments on these proposals are invited until August 13, 2026.