SEBI’s New Mutual Fund PMS Category & Lower Entry Rules

The Securities and Exchange Board of India (SEBI) has initiated a significant regulatory review, proposing the creation of a new mutual fund-only Portfolio Management Service (PMS) category. This move aims to streamline the Portfolio Managers Regulations, 2020, enhancing investment avenues for clients.

SEBI released a consultation paper on Thursday, outlining a comprehensive overhaul of the existing regulations. The objective is to expand investment opportunities, simplify compliance procedures, and refine the overall regulatory framework governing the portfolio management industry.

Expanding Market Footprint and Regulatory Alignment

The portfolio management sector has witnessed substantial expansion, prompting SEBI to undertake this thorough review. The regulator noted a significant increase in Assets Under Management, client base, and the number of operational portfolio managers.

• Assets Under Management (AUM) climbed from Rs 18.07 lakh crore in April 2019 to Rs 42.61 lakh crore by May 31, 2026.
• The number of PMS clients increased from 1.5 lakh to 2.19 lakh during the same period.
• The count of portfolio managers more than doubled, growing from 226 in 2020 to 515 by May 31, 2026.

This review aligns the regulations with evolving industry dynamics, rising investor sophistication, and the growing demand for personalized investment solutions. SEBI’s objective is to adapt to these changes effectively.

Introducing a Dedicated Mutual Fund-Only PMS Framework

A key proposal involves establishing a specialized mutual fund-only PMS framework. This new structure would permit portfolio managers to exclusively manage client funds through direct plans of mutual fund schemes, including exchange-traded funds and specialized investment funds.

This dedicated framework would operate under a separate MF-PMS registration. The proposal directly addresses representations and requests from industry stakeholders who identified a clear demand for a simplified “Mutual Fund-only” PMS, characterized by lowered entry barriers.

Revising Entry Thresholds and Fee Structures

SEBI is also recommending an easing of entry requirements for the portfolio management industry. This aims to make these services more accessible to a wider range of investors while ensuring robust oversight.

• The minimum client investment threshold is proposed to be reduced from Rs 50 lakh to Rs 25 lakh.
• For new applicants, the minimum net worth requirement would decrease from Rs 5 crore to Rs 2 crore.

Under the revised framework, portfolio managers would be allowed to charge a fixed management fee, capped at a maximum of 2.5%. Additionally, existing portfolio managers could offer MF-PMS through a distinct investment approach, further diversifying service offerings. The public’s comments and views on these proposed amendments are actively being sought.