SEBI has proposed a new Mutual Fund-based PMS (MF-PMS) category with a lower minimum investment of ₹25 lakh, compared to the current ₹50 lakh for traditional PMS. The proposal aims to bridge the gap between mutual funds and PMS by offering professionally managed portfolios that invest only in mutual fund schemes. SEBI has also proposed operational changes, fee caps, and other reforms to make PMS more flexible. The consultation paper is open for public feedback until August 2026.
The Securities and Exchange Board of India (SEBI) has made several amendments in the Portfolio Management Services (PMS) regime and the most noteworthy one is that SEBI is considering introducing mutual fund based PMS category. In case, the proposal gets approved then the proposal may reduce the investment entry barrier and offer a middle point between the traditional mutual fund regime and PMS regime.
In case the proposal gets accepted then investors will get access to mutual fund based PMS with a minimum investment limit of ₹25 lakh against the current PMS investment minimum of ₹50 lakh. The initiative has been taken to offer professionally managed portfolios for those investors who have investable amount higher than what is acceptable under the PMS regime.
What Is SEBI’s Proposed MF-Only PMS Category?
This new category of MF-PMS would enable the creation of portfolios made up entirely of mutual fund schemes. Some of the present PMS firms have started offering portfolios that are purely made up of mutual funds, but still, there has been no particular regulatory category made for this purpose.
SEBI’s proposal aims at establishing this format through the development of new regulations. The net worth required to start an MF-PMS business could also be lowered to ₹5 crore from ₹15 crore at present.
The consultation paper published by SEBI has invited public feedback till August 2026.
Proposed Fee Structure and Operational Changes
It has been proposed that SEBI cap the fixed management fee at 2.5% of the client’s Assets Under Management (AUM). On the other hand, performance fees may be charged or a combination of both.
However, SEBI has also solicited views regarding the possibility of charging performance fees in the case of MF-PMS schemes. As the managers of MF-PMS will only pick mutual funds and not be involved in the selection of stocks, SEBI is considering whether the use of performance fees is justified.
Operational relaxations have also been proposed by the regulator. While MF-PMS will continue to maintain a dealing room, the appointment of an additional individual has been made discretionary.
In order to prevent double payment, SEBI has proposed exemption from PMS-level exit load in the case of MF-PMS products. There will be no exit load both at the PMS level as well as at the mutual fund scheme level.
Why Investors May Consider MF-PMS?
This new classification seeks to fill the void between the two options. Investors often tend to have portfolios worth substantial money, but lack time, knowledge, and even interest to invest and manage their portfolios.
Experts in the industry believe that the new MF-PMS could be helpful to investors who tend to have larger portfolios by offering them professional management of their portfolios and rebalancing. But, some experts point out that the investment of ₹25 lakh might continue to be too high for some retail investors.
Investors are expected to consider aspects like experience of the fund manager, expense ratio of the underlying mutual funds, and whether or not an extra layer of PMS adds value over investing in mutual funds directly.
Other Changes Proposed for PMS Industry
There are some other suggestions that SEBI is making for portfolio managers. Portfolio Management Services (PMS) may be allowed to invest in foreign equity shares and debt instruments that have been listed abroad. Investments in unlisted debt securities are also under consideration, provided certain conditions are met.
Some of these proposals include the following:
1. Independent fund managers
2. Qualification of principal officers
3. Bringing client portfolios under PMS framework
Follow Up from this issue of SEBI 2026 OMS Overhaul
Impact on Investors and Market Outlook
The MF-PMS is thought to offer more investment options due to the professional management of funds-of-funds. Nevertheless, investors are expected to consider the advantages against direct investments in mutual funds where the costs are lower and there is a high level of transparency.
This idea would also allow wealthy investors to have more flexibility in case of moving their funds from one portfolio manager to another in case of poor results. This consultation paper is a big step towards the development of the PMS system.
