Sebi clears PRIM route for PMS players to invest in mutual funds, SIFs; Rs 25 lakh minimum ticket

The Securities and Exchange Board of India (SEBI) has approved the introduction of a new route known as Portfolio Managers' Route for Investing in Mutual Fund Units (PRIM), enabling portfolio management services (PMS) operators to invest clients' funds in direct mutual fund schemes, including exchange-traded funds (ETFs), index funds, and specialized investment funds (SIFs). Under this new framework, portfolio managers can offer PRIM as a distinct investment approach, with a minimum investment ticket size of Rs 25 lakh.

This development is expected to expand the scope of PMS beyond direct equity and other traditional investment approaches by allowing managers to create professionally managed portfolios using mutual fund and SIF products. Experts believe this regulatory change could help address the challenges faced by investors in portfolio construction, asset allocation, and periodic rebalancing.

The growing range of mutual fund products in India has presented these challenges, as investors struggle to construct effective portfolios while maintaining governance and transparency.

Vikas Khemani, Chairman of the Association of Portfolio Managers in India (APMI), welcomed the decision as a significant milestone for the PMS industry. According to Khemani, the move could broaden access to professionally managed portfolios while maintaining the framework within a regulated structure. He emphasized that this development aligns with the industry's focus on innovation and participation.

Sandeep Jethwani, Co-founder of Dezerv, highlighted that the significance of PRIM extends beyond simply providing investors with another route to access mutual funds. In fact, the bigger challenge for investors is deciding which funds to own, how much to allocate, when to rebalance, and how to remain disciplined during various market cycles.

Jethwani noted that over half of investor portfolios underperformed their benchmarks, citing behavioral and portfolio-construction issues as primary reasons. PRIM aims to tackle these issues by entrusting these decisions to a regulated portfolio manager, offering clearer accountability for fund selection, allocation, rebalancing, and navigating market cycles.

The PRIM framework will enable PMS players to invest in direct plan mutual funds, including ETFs, index funds, and SIFs offered by Indian asset management companies. This new route provides portfolio managers with an alternative approach to constructing portfolios without necessarily relying on direct stock selection. Dezerv's research, which included more than 8 lakh portfolio reviews, showed that access to mutual funds is no longer the primary challenge for investors; instead, the critical issue lies in selecting the right funds, allocating capital appropriately, rebalancing portfolios, and remaining disciplined through market cycles.

The introduction of PRIM could also provide greater visibility to PMS models that primarily use mutual funds as investment vehicles, rather than relying heavily on individual stocks. Dezerv, for instance, launched a mutual-fund-only PMS in 2022, recognizing the potential benefits of professional portfolio management with mutual funds across various market cycles. Currently, Dezerv's mutual-fund-only PMS strategies manage Rs 8,674 crore in assets, with a four-year live track record.