BT Explainer: SEBI proposes MF-only PMS framework: ₹25-lakh entry, 2.5% fee cap, simpler rules

The Securities and Exchange Board of India (SEBI) has proposed a dedicated Mutual Fund-only Portfolio Management Services (MF-PMS) framework that could significantly reshape India's wealth management landscape. The proposal aims to make professionally managed mutual fund portfolios accessible to a larger pool of investors while creating fresh business opportunities for portfolio managers, registered investment advisers (RIAs) and mutual fund distributors (MFDs).

The proposal is part of SEBI's Consultation Paper on the Comprehensive Review of the SEBI (Portfolio Managers) Regulations, 2020, released on July 23.

What is the proposed MF-PMS?

Currently, portfolio managers can invest client money in mutual funds as well as other securities. SEBI has now proposed a separate registration category exclusively for managers who wish to invest only in direct mutual fund schemes, including exchange-traded funds (ETFs) and Specialised Investment Funds (SIFs).

According to the regulator, the framework is intended for mass-affluent investors seeking professional portfolio management without investing directly in stocks or other securities.

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Key eligibility conditions

Under the proposed framework, applicants would require a separate MF-PMS registration and would have to comply with simplified eligibility norms.

Some of the key proposals include:

Minimum investment: ₹25 lakh per client
Minimum net worth: ₹2 crore for MF-PMS applicants
Management fee cap: 2.5% of assets under management (AUM)
Managers may also charge a performance fee or a hybrid fee model with client consent.
Simplified disclosure requirements
Principal officers to meet relaxed qualification and certification norms
Exit load provisions applicable to PMS will not apply, preventing double charging for investors.

Unlike conventional PMS offerings, investments will be limited to direct mutual fund schemes, ETFs and SIFs.

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What has Sebi proposed

Proposal	Details
Separate registration	Dedicated MF-PMS licence
Minimum investment	₹25 lakh
Minimum net worth	₹2 crore
Maximum management fee	2.5% of AUM
Performance fee	Allowed with client consent
Principal officer	Simplified qualification and certification norms
Disclosure	Simplified disclosure document
Optional infrastructure	Additional employees and dealing room not mandatory
Eligible investments	Direct mutual funds, ETFs and SIFs
MFD rules	Separate division and client segregation mandatory
Conflict prevention	Same client cannot receive both MFD and MF-PMS services

Separate business for MFDs

SEBI has also proposed allowing mutual fund distributors to operate an MF-PMS business, subject to strict segregation.

MFDs will have to maintain separate divisions for distribution and portfolio management activities. They will also be prohibited from offering both mutual fund distribution and MF-PMS services to the same client, thereby reducing potential conflicts of interest.

Existing portfolio managers will also be permitted to launch MF-PMS as a separate investment approach. 

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MF-PMS vs Traditional PMS

Parameter	MF-PMS (Proposed)	Traditional PMS
Investment universe	Direct mutual funds, ETFs, SIFs	Equities, debt, mutual funds and other securities
Minimum investment	₹25 lakh	₹50 lakh
Target investor	Mass-affluent investors	High-net-worth individuals (HNIs)
Management style	Mutual fund-only portfolios	Direct securities and diversified portfolios
Exit load	No PMS exit load provisions	PMS exit load may apply
Fee structure	Up to 2.5% AUM, performance fee allowed

Who can benefit?

Stakeholder	Likely Benefit
Retail/HNI investors	Professionally managed mutual fund portfolios at a lower entry threshold
Portfolio managers	Opportunity to launch a dedicated MF-only PMS
Mutual fund distributors	New fee-based advisory business through separate MF-PMS registration
Boutique RIAs	Lower regulatory barriers and compliance costs
Wealth management industry	Wider adoption of professionally managed mutual fund portfolios

Industry sees major structural reform

Wealth management professionals believe the proposal could broaden access to portfolio management while encouraging more boutique advisory firms to enter the space.

Anup Bhaiya, Founder of Money Honey Wealth Services Ltd, described the consultation paper as "one of the biggest structural reforms for India's wealth management industry in years."

"The key proposal is a new 'MF-only PMS' category with sharply lower barriers: client minimum cut from ₹50 lakh to ₹25 lakh and net-worth requirement reduced from ₹5 crore to ₹2 crore. Principal Officer norms are simplified, additional staff and dealing rooms made optional, disclosures streamlined, and fees allowed up to 2.5% management plus performance fees," Bhaiya said.

He added that the proposal expands investment flexibility while easing compliance requirements, creating opportunities for smaller RIAs, boutique advisers and MFDs to launch professional portfolio management offerings focused on direct mutual fund investments.

If implemented after the consultation process, the framework could bridge the gap between conventional mutual fund investing and traditional PMS offerings, giving investors access to customised mutual fund portfolios at a lower entry threshold.

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