Why in news?
The Securities and Exchange Board of India issued a consultation paper on 23 July 2026. It proposed a broad review of rules for Portfolio Management Services. One proposal creates a cheaper service investing only through mutual funds. Public comments remain open until 13 August 2026.
Background
A Portfolio Management Service (PMS) manages investments separately for each client under a written agreement.
The client usually owns the purchased securities directly, while the manager follows the agreed investment mandate.
India first created dedicated regulations during 1993, and an updated framework replaced them in January 2020.
The Securities and Exchange Board of India (SEBI) registers and regulates every lawful portfolio manager across the country.
How does a regular PMS work?
- The client and manager first sign an agreement describing objectives and risks.
- The client provides money, securities or both for portfolio management.
- The manager opens or operates accounts under the agreed legal arrangement.
- A custodian safely holds assets and supports settlement of transactions.
- The manager reports holdings, performance, fees and important transactions periodically.
The usual minimum investment for each regular PMS client is ₹50 lakh.
This high threshold reflects personalised service and greater investment flexibility for every separately managed client portfolio.
Three forms of portfolio management
| Form | Who takes the final decision? | What does the manager do? |
|---|---|---|
| Discretionary service | The portfolio manager decides within the agreed mandate. | The manager chooses investments and executes transactions for the client. |
| Non-discretionary service | The client approves each final investment decision. | The manager advises and executes the client’s approved instructions. |
| Advisory service | The client decides and arranges transaction execution. | The manager provides investment advice without managing the assets. |
PMS and mutual funds are not the same
| Point | Portfolio Management Service | Mutual fund |
|---|---|---|
| Ownership | The client normally owns individual securities directly. | The investor owns units of a pooled scheme. |
| Portfolio | Each client has a separately identifiable portfolio. | Many investors share one common investment pool. |
| Customisation | The mandate can reflect a client’s particular needs. | All unit holders follow the scheme’s common mandate. |
| Entry amount | Regular PMS generally requires at least ₹50 lakh. | Many mutual funds accept much smaller investments. |
| Tax event | Portfolio transactions may create taxes for that client. | Tax usually arises when the investor transacts in units. |
Why did SEBI propose a review?
The industry has expanded considerably in both size and complexity since the current regulations began.
Assets under management rose from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore.
The later figure covered all registered managers on 31 May 2026.
Client numbers increased from about 1.5 lakh to 2.19 lakh during the same broad period.
Registered portfolio managers increased from 226 during 2020 to 515 by May 2026.
SEBI therefore examined wider investment choices, lower compliance costs and clearer accountability for this rapidly changing industry.
Major proposals in the consultation paper
1. Wider investment choices
- Managers could invest in listed equity and debt securities outside India.
- They could also invest in securities proposed for listing.
- Discretionary portfolios could hold limited investment-grade unlisted debt.
- Such unlisted debt could form up to ten per cent of client assets.
2. Mutual-fund-only PMS
SEBI proposed a separate Mutual-Fund Portfolio Management Service (MF-PMS) category.
This service would invest only in direct plans of mutual fund products.
Eligible products could include exchange-traded funds and specialised investment funds.
- The proposed client threshold is ₹25 lakh, instead of ₹50 lakh.
- The manager’s proposed minimum net worth is ₹2 crore.
- A regular portfolio manager currently needs ₹5 crore net worth.
- Using direct plans would avoid an embedded distributor commission.
3. Derivative exposure
The paper proposed gross derivative exposure up to 1.25 times each client’s assets.
Derivatives derive value from another asset and can either hedge risk or magnify losses through leverage.
4. Independent fund managers
Experienced professionals could operate independently under a registered portfolio manager’s regulated platform.
The registered entity would remain responsible for compliance, supervision and client protection.
5. Proportionate compliance
Managers below ₹100 crore could avoid maintaining a separate dealing room.
They would still need proper controls, records and conflict-management systems.
Possible benefits and risks
| Possible benefit | Corresponding risk |
|---|---|
| Wider assets may improve diversification. | Foreign assets create currency and overseas-market risks. |
| MF-PMS may offer guided fund selection. | Clients may pay another fee above fund expenses. |
| Derivatives may protect portfolios from adverse movements. | Leverage may increase losses during sudden market movements. |
| Independent managers may support professional entrepreneurship. | Weak supervision may create accountability or conduct problems. |
Conclusion
SEBI’s proposals seek wider choice with proportionate regulation, while preserving clear responsibility for every client portfolio.