Sebi reopens the PMS rulebook: what it changes for investors and investment industry

The consultation paper is open for public comments until 13 August 2026.

Fee structure

Sebi has proposed capping the fixed management fee at 2.5% of a client's assets under management (AUM). Managers could alternatively charge a performance-linked fee or a combination of fixed and performance fees.

Interestingly, Sebi has also sought public feedback on whether performance fees should be permitted at all, since the MF-PMS manager only selects mutual funds while the underlying stock selection is handled by fund managers.

"The market should ultimately decide the fee structure. Sebi has proposed a maximum fee cap of 2.5%, not a mandatory fee," pointed out Biharilal Deora, chairman of the Association of Portfolio Managers in India (APMI).

He added that performance-linked fees should remain an option because they place the onus on the manager.

The regulator has also proposed easing operational requirements. MF-PMS providers would not need a dedicated dealing room, and appointing an additional employee would be optional.

For investors, Sebi has proposed exempting MF-PMS from PMS-level exit-load provisions so clients are not charged an exit load twice—once by the PMS and again by the underlying mutual fund scheme.

Target audience

The proposal aims to address a gap between conventional mutual funds and traditional PMS offerings.

"Many mass-affluent investors have accumulated sizeable mutual fund portfolios but lack the time, expertise or inclination to manage asset allocation, fund selection and periodic rebalancing. At the same time, many do not qualify for a traditional PMS because of the high ticket size," said Deora.

Vidya Bala, co-founder of PrimeInvestor.in, believes the framework fills an important gap.

"This gives an excellent opportunity for investors with mid-sized portfolios to have professional management at low cost, going through the direct plan and paying a fee linked to AUM—especially for rebalancing their portfolio at the right time, or knowing when to exit or enter a theme. These are typically where people go wrong."

“I don't view MF-PMS as a product. It is a wealth management solution available to investors free of distribution costs, at a fee directly linked to their assets,” she said.

Sandeep Jethwani, co-founder of Dezerv, said the proposal could bridge the gap between investment advice and execution.

"Other intermediaries may also consider the MF-only PMS option as it allows for taking care of the execution decisions, instead of leaving it to the clients," he said.

However, not everyone sees it as an easy opportunity.

"The ₹2 crore net worth requirement means requirement for large capital, which may not be easy for smaller practices," pointed out Suresh Sadagopan, founder of Ladder7 Financial Advisories. For comparison, current investment advisor regulations require a deposit of only ₹1 lakh for up to the first 150 clients.

What experts say

According to Dhirendra Kumar, founder and chief executive officer of Value Research, investors should ask some serious questions before considering an MF-PMS. He describes it as a portfolio of professionally managed portfolios rather than a PMS in the conventional sense, since the underlying holdings are mutual funds that Sebi already regulates directly.

For a busy, affluent investor who wants someone else to decide and act without waiting for approval, he says that has value— but it should be recognised for what it is. "That is portfolio management, not execution, and it should be priced as such," he said.

Cost is the first question. "Investors should watch the final number. Add the expense ratio of the underlying direct plans to the MF-PMS fee," Kumar said. “If that total runs higher than what a regular plan would have cost, the proposition has become expensive. The value has to justify the whole bill.”

The second is churn. Because a PMS holds securities in the investor's own name, every rebalancing call the manager makes is a taxable event for the client. "Frictionless execution can quietly become a liability if the manager churns," he said.

That leads to the third question — whether a mutual fund fund-of-funds (FoF) does the same job in a better wrapper, Kumar asks. "A FoF is a scheme, so it sits inside Sebi's mutual fund regulations with a trustee, a custodian, a daily NAV, a mandated portfolio disclosure and a cap on what it can charge," he said.

“Rebalancing happens inside the scheme, so the investor is not taxed every time the manager changes his mind. There is no minimum ticket size, so it is available to everyone and not just to the affluent.”

Bala of PrimeInvestor.in pointed to the trade-offs in the FoF route. "Performance of FoF may not necessarily be able to beat returns of a portfolio of quality funds. A fund of funds typically invests within one fund house's schemes, so you aren't necessarily picking the best fund in each category," she said. "On the other hand, holding several such FoFs may lead to overlap issues in terms of sectors, market caps or asset allocation."

A Balasubramanian, managing director and chief executive officer of Aditya Birla Sun Life Asset Management Company, agrees that a FoF offers better tax-efficiency, but PMS offers more customization for each individual based on their own goals and requirements.

According to Shyam Sekhar, founder and chief investment officer of ithought PMS, the solutions finally depend on investor requirement. "Do you want a minimalistic investment solution or a highly sophisticated, customized one? Indexing, life cycle funds and fund of funds are available for investors who want something simple. What MF-PMS could offer is something more sophisticated," he said.

Sekhar also welcomed the proposal on demat account portability, which he said would make it easier for investors to move their assets to another portfolio manager if they are dissatisfied with the experience.

Broader reforms

The consultation paper also proposes widening the investment universe for conventional PMS providers.

Portfolio managers would be allowed to invest client money in listed foreign equities, listed overseas debt securities and overseas mutual funds, subject to the Liberalised Remittance Scheme (LRS) limit of $250,000 per financial year and client consent.

Since PMS investments are held directly in an investor's account, these investments would count towards the individual's overall LRS limit, which also covers overseas travel, education and other foreign remittances.

The paper further proposes allowing PMS investments in to-be-listed securities and permitting discretionary PMS providers to allocate up to 10% of client AUM to investment-grade unlisted debt.

Another proposal could make it easier for talented fund managers to enter the industry without setting up their own PMS.

"One of the most interesting features is that talented fund managers who may not have the capital or compliance infrastructure to independently run a PMS can potentially work under a master portfolio manager structure," said R Pallavarajan, founder of PMS Bazaar.

"That could increase the number of professional fund managers in the ecosystem."

Investor takeaway

MF-PMS can offer customized portfolios for mass-affluent investors, who want their mutual fund portfolios to be fully managed by a professional.

What investors would need to watch out for are costs— both fees and tax incidence. Before considering such solutions, investors can assess the track-record of PMS providers and weigh whether potential returns justify the additional fee.