SEBI PMS overhaul could turn advisers into portfolio managers

The Securities and Exchange Board of India (SEBI) has proposed a significant overhaul of Portfolio Management Services (PMS) that could transform advisers and wealth managers into full-service portfolio managers. Under the new route for Portfolio Managers (PRIM), these professionals can manage custom portfolios, including direct plans of mutual funds, ETFs, index funds, and Specialized Investment Funds (SIFs).

To qualify for PRIM, portfolio managers must manage portfolios of at least ₹25 lakh, compared to the ₹50 lakh minimum for conventional PMS. This lower threshold could appeal to advisers seeking to assume greater responsibility for portfolio construction, allocation, and rebalancing. Dharmendra Jain, Co-Founder of Ionic Wealth, notes that PRIM could offer a "full-spectrum portfolio" encompassing IPOs, global investments, unlisted debt, and derivatives for risk management.

PRIM also introduces a new fee structure, capping fixed management fees at 1% of assets under management (AUM) while allowing performance-based fees. Affiliated, group, or associate asset management companies can be allocated a maximum of 25% of the portfolio. Additionally, PRIM-only portfolio managers must possess a minimum net worth of ₹2 crore.

Existing PMS players can offer PRIM as an alternative investment approach, while new applicants can specifically register for this route. Furthermore, PMS managers can now engage in IPOs, primary debt issuances, overseas investments, REITs, mutual funds, ETFs, index funds, and foreign government securities, subject to applicable rules.

This expanded scope allows for greater diversification and portfolio construction opportunities, including investing up to 10% of client AUM in investment-grade unlisted debt with client consent and accessing exchange-traded derivatives up to 1.25 times client AUM.