Mutual Funds – SEBI Proposes New PMS Category to Expand Investor Access
Mutual Funds – The Securities and Exchange Board of India (SEBI) has proposed a major overhaul of the country’s portfolio management regulations, aiming to introduce a new mutual fund-only Portfolio Management Service (MF-PMS) category while making the industry more accessible for investors and market participants.
The market regulator released a consultation paper outlining a broad review of the SEBI (Portfolio Managers) Regulations, 2020. The proposed changes are intended to simplify the regulatory framework, reduce compliance requirements, and widen investment opportunities in line with the industry’s rapid expansion and changing investor preferences.
SEBI Invites Public Feedback on Proposed Changes
In its consultation paper, SEBI has invited comments from stakeholders and the public on the suggested amendments. According to the regulator, the review has been undertaken to modernize the existing regulations and ensure they remain relevant as the portfolio management industry continues to evolve.
The proposed reforms are designed to reflect the growing use of technology, increasing investor awareness, rising demand for customized investment strategies, and a broader preference for diversified portfolios.
Portfolio Management Industry Records Strong Growth
SEBI highlighted that the Portfolio Management Services (PMS) sector has witnessed substantial expansion over the past several years. Assets under management (AUM) in the industry climbed to Rs 42.61 lakh crore as of May 31, 2026, compared with Rs 18.07 lakh crore in April 2019.
The client base has also grown steadily during this period, increasing from nearly 1.5 lakh investors to around 2.19 lakh. At the same time, the number of registered portfolio managers has more than doubled, rising from 226 when the revised PMS regulations came into effect in 2020 to 515 by the end of May 2026.
Dedicated Mutual Fund-Only PMS Framework Proposed
One of the most significant proposals is the creation of a separate Mutual Fund-only Portfolio Management Service category. Under this framework, registered portfolio managers would manage client investments exclusively through direct plans of mutual fund schemes, including exchange-traded funds (ETFs) and specialised investment funds.
SEBI said the proposal follows requests from industry participants who have sought a simplified structure focused solely on mutual fund investments. At present, portfolio managers are permitted to invest client money in mutual fund units alongside other eligible securities. The new registration category would allow firms to offer an investment approach dedicated entirely to mutual funds.
Lower Entry Barriers for Investors and Firms
To encourage wider participation in the portfolio management industry, SEBI has also proposed easing certain eligibility requirements.
The regulator has suggested reducing the minimum investment amount required from clients from Rs 50 lakh to Rs 25 lakh. In addition, the minimum net worth requirement for new portfolio management applicants could be lowered from Rs 5 crore to Rs 2 crore.
Existing portfolio managers would also be permitted to introduce MF-PMS offerings through a separate investment approach under the proposed framework.
Proposal Includes Cap on Management Fees
As part of the revised framework, SEBI has recommended placing a ceiling on fixed management charges. Portfolio managers operating under the proposed mutual fund-only model would be allowed to charge a fixed management fee of up to 2.5% of a client’s assets under management.
The regulator believes the proposed changes could simplify investment options while maintaining regulatory oversight and improving access to professionally managed portfolios. The consultation process will help SEBI gather stakeholder feedback before taking a final decision on the proposed amendments.