SEBI proposes sweeping PMS reforms: Mutual fund-only category, overseas investments allowed
Capital markets regulator Securities and Exchange Board of India (SEBI) has proposed a comprehensive review of the Portfolio Managers Regulations, 2020, aiming to modernise the framework governing portfolio management services (PMS). The consultation paper, released on July 23, comes amid rapid growth in the PMS industry and changing investor preferences.
According to SEBI, assets under management (AUM) by portfolio managers have more than doubled over the past six years, reaching Rs 42.61 lakh crore as of May 2024. The number of clients has increased from 1.5 lakh in April 2019 to 2.19 lakh, while the number of registered portfolio managers has risen from 226 in 2020 to 515.
One of the key proposals is the introduction of a 'mutual fund-only' category of portfolio manager, which would allow PMS providers to offer services restricted to investing in mutual fund schemes. This is intended to provide lower-cost alternatives for investors who seek professional management but wish to avoid the high minimum investment threshold (currently Rs 50 lakh) associated with traditional PMS.
Additionally, SEBI has proposed expanding the investment universe for portfolio managers. Currently, PMS providers cannot invest in overseas securities or in securities that are yet to be listed. The new rules would permit investments in overseas listed equity and debt securities, as well as 'to be listed' securities. Portfolio managers offering discretionary services may also invest up to 10% of a client's AUM in investment-grade unlisted debt securities.
The regulator believes these changes will enable portfolio managers to design more diversified and customised portfolios for high-net-worth clients, while aligning PMS regulations more closely with those governing mutual funds and alternative investment funds. The proposals also acknowledge growing investor demand for global diversification.
SEBI has invited public comments on the consultation paper until August 31. If implemented, the reforms could significantly reshape India's PMS industry by offering greater flexibility and broader investment options.
