Rs 25 Lakh Threshold Signals Massive Shift in PMS Market: SEBI Proposes Democratization of Elite Portfolio Management

Rs 25 Lakh Threshold Signals Massive Shift in PMS Market: SEBI Proposes Democratization of Elite Portfolio Management​

India’s professional portfolio management services (PMS) industry is on the cusp of a major regulatory overhaul, as the Securities and Exchange Board of India (Sebi) proposes sweeping changes that could significantly broaden access to high-level financial expertise. Sebi released a consultation paper on July 23rd, initiating a comprehensive review of the Portfolio Managers Regulations, 2020. This proposal is set to redefine how investors can participate in bespoke portfolio management.

New Low-Ticket Category Aims to Broaden PMS Access​

The most critical component of the Sebi proposal centers on introducing a dedicated mutual fund-only PMS framework. This new structure aims to make sophisticated portfolio advice accessible to a wider investor base, by lowering entry barriers dramatically. The minimum ticket size for this category is proposed to drop from Rs. 50 lakh to Rs. 25 lakh. Furthermore, the required net worth has been reduced from Rs. 5 crore to Rs. 2 crore, along with simplified certification procedures.

Diversified Investment Universe and Derivatives Flexibility​

The scope of investments permitted under this revised framework is set to expand substantially. The Sebi paper allows PMS managers access to a much wider universe, including "to-be-listed" securities. Discretionary PMS clients could allocate up to 10% of their assets into investment grade unlisted debt securities. Foreign market exposure will also be introduced, requiring explicit positive client consent and governed by FEMA, 1999.

Portfolio managers will gain significant flexibility regarding derivatives trading. Clients may receive total exposure of up to 1.25 times their assets through exchange-traded derivatives. Unhedged short exposure in equity derivatives is capped at 50% of AUM, with option premium exposure limited to 10%. Both the Association of Portfolio Managers in India (APMI) and industry experts see this expansion as crucial for delivering differentiated investment strategies.

Easing Compliance Burdens and Fee Structures​

To streamline operations, Sebi has introduced several compliance easing measures alongside the new fee structure. Digital sharing of disclosure documents is permitted, and filing timelines have been revised from 7 working days to 10 calendar days. Corporate governance report deadlines are also widened to 60 days. Furthermore, demat account portability across various portfolio managers is proposed, along with relief from needing fresh power of attorney.

The fee structure offers flexibility, allowing PMS operators the option of a fixed management fee capped at 2.5% of AUM. Managers can also charge a performance-based fee or a combination of both, provided there is explicit client consent. Mayur Shah, a PMS fund manager at Anand Rathi Advisors, noted that this move aligns PMS closer to alternative investment funds (AIFs) and mutual funds.

Expert Viewpoints on Industry Evolution​

The proposals are viewed by industry leaders as transformative. Biharilal Deora, Chairman of APMI, emphasized the potential for the category to provide professionally managed, customized solutions while maintaining a clear distinction between traditional mutual funds and bespoke portfolio management. He added that robust suitability norms could also benefit registered investment advisors (RIAs) and large mutual fund distributors.

However, some industry participants have raised points requiring greater clarity before implementation. Mayur Shah questioned the necessity of separate registration for PMS managers in this category, suggesting instead a dedicated client setup option. Additionally, he noted the need for clarification regarding whether "to-be-listed" assets can be held at the pool level and how redemption frameworks will operate under such conditions.

Grandfathering and Future Outlook​

The regulatory review was prompted by the industry's growth, as Sebi stated that the PMS sector has more than doubled since the last review. To accommodate existing clients, a grandfathering clause is in place for those currently at the Rs. 25 lakh minimum; they will have 36 months to comply with the revised Rs. 50 lakh threshold, unless they are MF-PMS clients. Public comments regarding Sebi’s proposal are open until August 13, 2026.