Sebi proposes MF-only portfolio management service, wider investment universe

The Securities and Exchange Board of India (Sebi) has proposed a sweeping revamp of portfolio management regulations that would create a mutual fund-only portfolio management service (PMS) category while expanding the investment universe for portfolio managers to include to-be-listed, unlisted securities and overseas assets.

In a consultation paper issued on Thursday, the market regulator undertook a comprehensive review of the Sebi (Portfolio Managers) Regulations, 2020, aimed at broadening investment avenues, easing compliance and simplifying the regulatory framework for an industry whose assets under management (AUM) are fast growing.

PMS allows professional fund managers to run customized portfolios for affluent investors with a minimum investment of ₹50 lakh. The industry AUM has more than doubled to ₹42.61 trillion as of May 2026 compared to 2019. The total number of clients has surged to 219,000 from 150,000 in the same period.

The market regulator has recommended introduction of a dedicated mutual fund-only PMS framework, a move designed to bring professionally managed mutual fund portfolios to a wider pool of affluent investors.

Under the proposal, portfolio managers would be allowed to exclusively manage client money in direct plans of mutual fund schemes, including exchange-traded funds and specialized investment funds, through a separate MF-PMS registration.

To make the model more accessible, Sebi has proposed lowering the minimum investment threshold for MF-PMS to ₹25 lakh from ₹50 lakh applicable to regular PMS, while reducing the minimum net worth requirement for applicants to ₹2 crore from ₹5 crore. Existing portfolio managers would be allowed to offer MF-PMS through a separate investment approach.

The regulator has proposed capping fixed management fees under the framework at 2.5% of client's AUM, while allowing performance-linked fees or a combination of fixed and performance fees with explicit client consent.

To avoid conflicts of interest, mutual fund distributors operating an MF-PMS would have to maintain arm's-length segregation between their distribution and portfolio management businesses, with the same client barred from receiving both services from the same entity.

"The proposed changes by SEBI would enable portfolio managers to compete on a more level playing field with alternative investment funds (AIFs) and specialized investment funds (SIFs)," said Karan Aggarwal, co-founder and chief investment officer at Ametra PMS. “The revised framework would allow PMS providers to capitalize on opportunities across the full market spectrum, from value investing to high-growth or bubble-driven segments.”

In another significant change, Sebi has proposed allowing portfolio managers to invest client money in securities that are yet to be listed. The regulator said the current framework permits investments only in listed and traded securities and does not specifically provide for investments in "to-be-listed" securities.

Sebi has defined to-be-listed securities as "equity securities available for purchase or application or investment under public issue in an initial public offer, or debt securities under primary market issuance, till its listing on a recognized stock exchange" in the new regulation.

The consultation paper also proposes allowing discretionary portfolio managers to invest up to 10% of a client's AUM in investment-grade unlisted debt securities.

Mint reported in April that the industry had made a representation to Sebi to allow discretionary PMS to invest in unlisted securities and anchor investments in IPOs. At present, only non-discretionary portfolio management services and advisory portfolios can invest up to 25% of client assets in unlisted securities.

Portfolio managers could also gain access to overseas markets under the proposed framework. Sebi has suggested allowing investments in listed foreign equities, listed debt securities and overseas mutual funds and unit trusts ...