SEBI's MF-PMS Framework: ₹25L Minimum, 2.5% Fee Cap Explained
SEBI's July 2026 consultation paper proposes a new MF-PMS registration category with a ₹25 lakh minimum investment (down from ₹50 lakh), a 2.5% management fee cap, and mandatory separation between MFD and advisory operations. Here's what changes if finalised.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: SEBI) (Portfolio Managers) Regulations, 2020, Regulation 24 — Effective: 2020 (current minimum ₹50 lakh); Consultation Paper issued 23 July 2026. Source: SEBI-advisory) consultation paper on Comprehensive Review of SEBI (Portfolio Managers) Regulations, 2020. Last reviewed by CA Harun Raaj: July 2026.
SEBI released its Consultation Paper on the Comprehensive Review of the SEBI (Portfolio Managers) Regulations, 2020 on 23 July 2026, proposing a dedicated MF-PMS registration category — portfolio managers who invest exclusively in direct mutual fund schemes, ETFs, and Specialised Investment Funds (SIFs). If adopted, the minimum investment threshold for this category would fall to ₹25 lakh from the current ₹50 lakh, and management fees would be capped at 2.5% of assets under management (AUM).
Background: Growth and Structural Gaps
India's Portfolio Management Services industry has grown from ₹18.07 lakh crore AUM in 2019 to ₹42.61 lakh crore by May 2026 — a 2.4x expansion in seven years. This growth has exposed structural inefficiencies:
- The ₹50 lakh minimum excludes a large segment of affluent savers from structured portfolio management
- Mutual fund distributors (MFDs) operating alongside PMS entities face inherent conflicts of interest
- Fee structures vary widely with no management fee ceiling
- Operational requirements designed for securities-trading PMS create unnecessary compliance burden for MF-only advisers
The MF-PMS category is SEBI's response: a lighter regulatory footprint for advisers operating within mutual funds and ETFs only.
Proposed Framework: MF-PMS vs Traditional PMS
Key point: The MF-PMS category offers lower entry barriers (both capital and investment minimums) and a defined fee structure, while restricting eligible investments to regulated mutual fund products.
Mandatory Separation: MFDs and MF-PMS Advisers Cannot Share Clients
Entities operating as mutual fund distributors (MFDs) and MF-PMS providers must maintain arm's-length separation through distinct divisions or separate legal entities. No client may simultaneously receive distribution services and MF-PMS advisory from the same entity without structural separation — consistent with SEBI's existing Investment Adviser rules.
This restriction prevents conflicts where an MFD might recommend its own in-house PMS as a distribution channel rather than in the client's best interest.
Who This Affects
Investors (₹25–50 lakh savings): Currently barred from PMS by the ₹50 lakh minimum, you would become eligible for structured portfolio management if the framework is finalised.
Existing PMS managers: Evaluate whether the MF-PMS category suits your investment mandate. Lower net-worth requirements (₹2 crore vs ₹5 crore) reduce capital burden, but restriction to MF/ETF/SIF products may not suit multi-asset or stock-heavy strategies.
Mutual fund distributors with advisory arms: Identify clients receiving both distribution and advisory services today. Mandatory structural separation will require reorganisation of client relationships and internal governance.
Specialised Investment Fund (SIF) sponsors: The proposal signals stronger institutional acceptance of SIFs (introduced 2025) as an asset class within professionally managed portfolios.
Timeline and Next Steps
This is a consultation paper, not a final rule. The following sequence applies:
- SEBI publishes a comment period (deadline not yet announced)
- Stakeholder feedback is reviewed
- SEBI board approves a final regulation (typically 3–6 months after consultation closes)
- Final regulation is notified under the SEBI Act, 1992
- Compliance deadline is set for existing and new entities
Until final notification, the current ₹50 lakh minimum and unlimited fee structure remain in force.
Practical Action Points
- Investors: Do not assume a lower entry threshold until final rules are published. Monitor sebi.gov.in for the comment deadline.
- PMS Managers: Review your net worth and investment mandate against the proposed MF-PMS criteria; assess the 2.5% fee cap against your current revenue model.
- MFDs with advisory services: Map which clients currently receive both distribution and portfolio management advice; plan for structural separation if the rule is finalised.
- All stakeholders: Refer to sebi.gov.in for the formal consultation paper and final circular when issued.
I'm CA Harun Raaj, Visakhaputnam. If you manage a PMS, advise HNI clients, or operate an MFD with advisory services, reach out to discuss how these proposals may reshape your operations.
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See Also
Frequently Asked Questions
Is the ₹25 lakh MF-PMS minimum in effect today?+
No. The ₹25 lakh threshold is a proposal in SEBI's consultation paper released 23 July 2026. The current minimum investment under Regulation 24 of the SEBI (Portfolio Managers) Regulations, 2020 remains ₹50 lakh per client until a final amended regulation is notified by SEBI.
What is the difference between MF-PMS and traditional PMS?+
MF-PMS (proposed) restricts investments to direct mutual funds, ETFs, and SIFs with a ₹25 lakh minimum, ₹2 crore portfolio manager net worth, and a 2.5% fee cap. Traditional PMS permits investments in stocks, bonds, and unlisted securities, requires ₹50 lakh minimum, ₹5 crore net worth, and has no fee ceiling. Both permit performance fees with written consent.
Can a mutual fund distributor also provide MF-PMS advisory to the same client?+
The proposal mandates arm's-length separation: an entity cannot simultaneously provide distribution and MF-PMS advisory services to the same client. Entities operating both will need separate divisions or legal structures with distinct governance and no overlap in client relationships.
What is a Specialised Investment Fund (SIF)?+
An SIF is a SEBI-regulated investment product introduced in 2025, positioned between mutual funds and PMS. It has a minimum investment of ₹10 lakh. The MF-PMS proposal includes SIFs as eligible investment instruments for MF-PMS portfolios.
Does the 2.5% fee cap apply to existing PMS managers?+
The 2.5% management fee cap applies only to the proposed MF-PMS category. Existing traditional PMS managers are not directly affected by this proposal, and their fee structures remain unregulated unless a separate rule change is announced.
What is the net worth requirement for MF-PMS portfolio managers?+
Under the proposal, portfolio managers registering in the MF-PMS category must maintain a net worth of ₹2 crore, compared to ₹5 crore for traditional PMS. This lower capital requirement reduces the barrier to entry for advisers operating within mutual fund products only.
When will the final MF-PMS rules be published?+
No timeline has been announced. SEBI will publish a comment period for the consultation paper; final rules typically follow 3–6 months after the comment deadline closes. Check sebi.gov.in for updates and the official comment deadline.
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