MUMBAI: The Securities and Exchange Board of India (SEBI) has proposed a dedicated Mutual Fund-Portfolio Management Services (MF-PMS) framework aimed at mass-affluent investors looking for professional oversight of their mutual fund investments. The proposal introduces a reduced minimum investment threshold and relaxed regulatory norms to spur participation among both investors and intermediaries.
Under the proposed structure, the minimum ticket size for MF-PMS will drop to ₹25 lakh, down from the existing ₹50 lakh required for traditional PMS. Unlike conventional portfolio management services that directly hold individual equities, the new MF-PMS category will invest exclusively in direct plans of mutual funds, exchange-traded funds (ETFs), and specialised investment funds (SIFs)
Understanding PMS vs. MF-PMS
Conventional Portfolio Management Services are tailored investment solutions primarily targeted at high-net-worth individuals, carrying a mandatory minimum investment of ₹50 lakh since 2021
PMS operates through two distinct modes:
Discretionary Mode: The portfolio manager retains total authority over investment decisions. Discretionary managers can invest across listed equities, bonds, and commodities. SEBI has now also proposed allowing discretionary PMS to allocate up to 10% of client assets into investment-grade unlisted debt securities.
Non-Discretionary Mode: The manager must secure explicit consent from the client prior to executing any trade. Non-discretionary PMS is permitted to invest up to 25% of its assets in unlisted equity.
Non-Discretionary Mode: The manager must secure explicit consent from the client prior to executing any trade. Non-discretionary PMS is permitted to invest up to 25% of its assets in unlisted equity.
Compliance mandates have also been significantly streamlined:
- Operations: Maintaining a dedicated dealing room and hiring additional employees will now be optional.
- Disclosure & Licensing: Qualification and experience mandates for principal officers are set to be relaxed, along with simplified certification processes and disclosure formats.
- Arm’s-Length Rules: Mutual fund distributors registered under the MF-PMS setup must maintain an arm’s-length distance between their distribution business and MF-PMS operations through a separately identifiable division. Client-level segregation will be mandatory, meaning a distributor cannot offer both regular mutual funds and MF-PMS to the same client under the same entity.
Existing portfolio management firms can launch MF-PMS offerings through distinct product setups under the new regulatory framework
Proposed Fee Structure and Exit LoadsSEBI’s consultation framework permits portfolio managers to levy a fixed management fee capped at up to 2.5% of the client’s Assets Under Management (AUM).
Managers can also charge a performance-linked fee, or a hybrid combination of fixed and performance charges, provided explicit client consent is obtained. To prevent investors from being burdened with double charges, SEBI has proposed waiving exit loads at the MF-PMS level, as exit loads may already apply at the underlying mutual fund scheme level.
Industry Scale
The regulatory reset comes at a time when the PMS industry in India manages ₹43.26 lakh crore in assets. However, a major share of this capital – ₹32.44 lakh crore-stems from EPFO and provident fund investments in permissible securities. Non-EPFO assets in the industry stand at approximately ₹10.82 lakh crore.
The sector currently comprises 526 registered portfolio managers supported by a network of over 20,000 distributors. Key industry players include 360 ONE Portfolio Managers, Aditya Birla Sun Life Asset Management, Enam Asset Management, ICICI Prudential Asset Management, and Avendus Wealth Management.
