SEBI’s MF-Only PMS and the Indian Wealth Gap It Aims to Fill

India’s capital markets regulator is trying to plug a long-standing hole in the wealth management ladder. At present, investors with Rs 25–50 lakh of investable surplus often fall between two stools: they have enough money to seek professional help, but not enough to meet the Rs 50 lakh minimum entry ticket for portfolio management services (PMS).

SEBI’s consultation paper released on 23 July proposes a mutual fund-only PMS framework that would lower that barrier to Rs 25 lakh. The catch: the manager can invest only in direct plans of mutual fund schemes, exchange-traded funds (ETFs) and the newly introduced Specialized Investment Funds (SIFs) — no individual stocks, bonds or other assets.

The rationale, as industry voices point out, is that the mutual fund universe has become unwieldy. With roughly 2,000 schemes chasing around 500 investable stocks, selecting, combining and monitoring the right funds has turned into a full-time job. SEBI’s answer is to let a professional manager take over those decisions under a tightly regulated discretionary mandate, giving investors a cost-effective way to delegate.

How MF-Only PMS Differs From Traditional PMS and Advisory Models

Closing the wealth management gap for Rs 25–50 lakh investors

Sandeep Jethwani, co-founder of wealth platform Dezerv, estimates that between 1.5 crore and 2 crore Indian citizens have investable surpluses in this Rs 25–50 lakh band but are currently not served by traditional PMS. The proposed framework creates a regulated bridge: it is more affordable than PMS yet provides the active oversight many self-directed investors struggle with when they try to manage multiple mutual fund schemes.

Discretionary management vs advisory: who bears the risk?

One of the sharpest contrasts with today’s advisory models is that an MF-only PMS operates on a discretionary basis. The manager holds legal authority to execute trades, rebalance and switch schemes — and is directly accountable for the portfolio’s performance. In an advisory relationship, by contrast, the investor must take the final call, which often leads to delayed execution or emotional decisions during market swings. Jethwani argues that many investment strategies fail not because they are flawed, but because investors hesitate to act in real time.

Cost transparency and the end of embedded commissions

Because the new framework restricts investments to direct plans of mutual funds, it automatically eliminates the distributor commissions baked into regular plans. The portfolio manager can charge a fixed management fee capped at 2.5% of assets, and may also charge performance-based fees with investor consent. Crucially, exit loads at the portfolio level are expressly waived, so an investor never pays a second layer of charges when withdrawing money. The fee structure, in combination with direct plans, aims to make costs fully visible and avoid double-dipping.

Two layers of regulatory oversight

The design combines product-level protection under SEBI’s mutual fund regulations with portfolio-level fiduciary responsibility under its PMS rules. This twin-layer oversight is meant to offer a stronger safety net than purely advisory arrangements, where the onus largely falls on the investor to monitor the advisor’s recommendations.

What the Proposed Rules Mean for Your Investment Decision-Making

If the proposal becomes regulation, here is what a retail investor weighing this route should consider:

  • Understand the total cost of ownership. The management fee is just one component; add the expense ratios of the underlying direct mutual fund plans to get a true all-in cost. Compare this with what you would pay if you built and rebalanced a similar basket of direct plans on your own.
  • Check the registration. Only SEBI-registered portfolio managers can offer PMS. Verify the manager’s credentials and track record before handing over discretion.
  • Be comfortable giving up execution control. The discretionary mandate means you cannot second-guess every trade. If you prefer to retain decision-making authority, a pure advisory or self-managed approach may suit you better, even if it requires more effort.
  • Revisit your corpus size and goals. This framework is designed for a specific pocket of capital — Rs 25–50 lakh for which a full-fledged PMS would be too expensive. If your investable surplus is smaller, low-cost direct mutual fund investing may remain the most sensible path.