SEBI Proposes Comprehensive Reforms to Portfolio Management Services (PMS) Framework

Syllabus: GS3/ Economy

Context

• The Securities and Exchange Board of India (SEBI) has proposed a sweeping review of the SEBI (Portfolio Managers) Regulations, 2020, seeking to modernise the framework governing portfolio management services (PMS).

What’s a Portfolio Management Service (PMS)?

• Portfolio management service (PMS) is registered under the SEBI (Portfolio Managers) Regulations, 2020. 
• It is a professional investment service where a qualified fund manager takes charge of the equity, debt and other securities portfolio of a customer, who is a high net-worth individual. 
• Only corporate entities, companies or LLPs with SEBI registration can legally offer these services in India. SEBI mandates that no PMS provider can accept less than Rs 50 lakh per client.

Need for the Proposed Framework

• The proposal comes against the backdrop of a rapid expansion in the PMS industry and changing investor preferences. 
• According to SEBI, assets managed by portfolio managers have more than doubled over the past six years, prompting the need for a fresh regulatory framework.
• The assets under management (AUM) of the PMS industry reached Rs 42.61 lakh crore as on May 2026 from Rs 18.07 lakh crore in 2019.
  • The total number of clients as of May 2026 stood at 2.19 lakh from 1.5 lakh in 2019. 
  • The number of portfolio managers has more than doubled from 226 in 2020 to 515 as of May 2026.

Key Proposals of SEBI

• PMS managers will have to obtain a separate registration as a MF-PMS.
• The minimum investment would be reduced to Rs 25 lakh, potentially opening the door to a much wider base of affluent investors. Traditional PMS products require a minimum investment of Rs 50 lakh.
• SEBI has proposed a lower net worth requirement of Rs 2 crore, compared with Rs 5 crore for traditional PMS, along with simplified qualification requirements for principal officers and optional dealing room and staffing requirements.
• SEBI has proposed capping the fixed management fee at 2.5 percent of the client’s assets under management (AUM). Portfolio managers may also charge performance-linked fees or a combination of fixed and performance-based fees, but only with the explicit consent of the client.
• If an entity is both a mutual fund distributor and an MF-PMS provider, it must maintain an arm’s-length relationship between the two businesses through separate divisions.
  • The same client cannot be offered both mutual fund distribution services and MF-PMS by the same entity.
• Unlike conventional PMS, where portfolio managers invest directly in stocks, bonds and other securities, the proposed MF-PMS would be restricted to investing only in direct plans of mutual fund schemes, Exchange Traded Funds (ETFs) and Specialised Investment Funds (SIFs).

Significance of the Proposed Reforms

• Expands Investment Opportunities: Allows portfolio managers to diversify investments across a wider range of domestic and international assets.
• Improves Ease of Doing Business: Simplifies compliance requirements and lowers operational barriers for portfolio managers.
• Promotes Financial Innovation: Introduces new investment structures, such as the Mutual Fund-based PMS and Independent Fund Manager Platform.
• Aligns with Global Best Practices: Modernises the PMS regulatory framework in line with evolving international investment management standards.

Source: IE