PMS Firms Push SEBI for Regulatory Overhaul to Catch Up with AIFs and Unlisted Markets

Portfolio management services (PMS) firms are mounting pressure on the market regulator, SEBI, to significantly overhaul their operational framework. The industry contends that current restrictions are limiting PMS growth, creating a widening gap when measured against rival products like Mutual Funds and Alternative Investment Funds (AIFs).

Industry executives have specifically demanded greater access to unlisted markets and permission to participate as anchor investors in Initial Public Offerings (IPOs). These two areas are currently restricted under existing PMS structures.

The push comes as PMS assets are struggling to maintain pace with the growth of other asset classes in India's highly competitive asset management market.

Addressing Structural Limitations and Investment Gaps​

A major area of concern for PMS firms is the ability to invest in unlisted securities. While non-discretionary PMS structures can allocate up to 25% to unlisted assets, the vastly larger discretionary PMS segment, which accounted for 92% of total PMS assets as of February, is prohibited from such investments.

This structural constraint places PMS managers at a "handicap" compared to rivals like AIFs, which inherently have significantly broader scope for unlisted asset investments.

Experts suggest potential workarounds, such as classifying PMS structures as Qualified Institutional Buyers (QIBs), an allowance currently managed by depositories like NSDL and CDSL.

Further complexity arises from the tax framework. PMS requires individual reporting for every transaction, which can dampen the appeal of high-churn, active investment strategies. Conversely, AIFs handle taxation at the fund level, receiving returns net of tax and easing the compliance burden for investors.

Comparing PMS Growth Trajectory to Mutual Funds and AIFs​

Data confirms the divergence in growth between the segments. As of January, PMS assets under management (AUM) grew 14.4% year-on-year, reaching ₹ 11.7 trillion.

In stark contrast, Mutual Fund AUM soared 21% over the same period, hitting ₹ 81.01 trillion, demonstrating significantly higher market penetration.

Client growth reflects a similar trend. PMS accounts grew by only about 7% between June 2025 and February 2026, totaling an estimated 217,000 folios. Mutual fund folios, meanwhile, grew by 12%, reaching 271 million.

The demand for unlisted assets also shows a major gap. As of February in fiscal 2026, AUM in unlisted equity among PMS firms grew 26.3%, while the growth rate for listed equity AUM was only 5%.

Key Operational Reforms Sought by Industry Players​

Industry participants are pushing for flexibility across several operational fronts to enhance PMS competitiveness.

One core demand is enabling PMS managers to advise on unlisted securities, a capability currently restricted, even though Registered Investment Advisors (RIAs) can perform this service.

PMS firms also point to operational inefficiencies, noting that client onboarding—a process that is instantaneous with mutual funds—is often far more complex in a PMS structure.

PMS managers argue that increased flexibility could significantly benefit the product's attractiveness. However, sector experts caution that any structural changes must translate into measurable improved returns to truly impact the product’s value.

This regulatory review is expected to be comprehensive, following reports that SEBI planned a consultation paper to overhaul the six-year-old PMS framework before its board meeting. The regulator has actively sought feedback from industry participants, which is anticipated to shape the future rules.