SEBI

SEBI’s Proposed MF-Only PMS: What Investors Need to Know

The Securities and Exchange Board of India (SEBI) has recently proposed some important changes in the rules of Portfolio Management Services (PMS). This aims to introduce a new category called Mutual Fund-only PMS (MF-Only PMS). Through this, investors can get the opportunity to have a portfolio professionally managed based only on mutual funds.

This new system can create an intermediate option between investing in ordinary mutual funds and conventional PMS. However, if it is introduced, it will not be enough to look at the benefits alone. It is also important to understand its costs, fees, limitations, and how it will work. In this article, we will learn about MF-Only PMS, the reason for SEBI’s proposal, and what changes it can bring for investors.

What is SEBI’s proposed MF-Only PMS?

SEBI’s proposed Mutual Fund-only PMS (MF-Only PMS) is a new portfolio management service where the portfolio manager will manage only mutual fund-based investments. They will not invest directly in shares or bonds. Instead, they will create and manage a customized portfolio for the investor by choosing different types of mutual funds.

This system aims to provide a professional service to investors who want to invest in mutual funds but do not want to make all the decisions themselves. SEBI has proposed a minimum investment of ₹25 lakh for this category.

The key features of MF-Only PMS are:

• Only investments can be made in direct mutual fund plans.
• There will be an opportunity to invest in Exchange Traded Funds (ETFs).
• Investments can also be made in Specialized Investment Funds (SIFs).
• The portfolio manager cannot directly buy shares or bonds.
• The minimum investment amount proposed is ₹25 lakh.

Why has SEBI brought this Proposal?

SEBI has proposed this new category so that investors get another professional investment option. Many people choose mutual funds on their own, while many find it difficult to meet the minimum investment requirement of ₹50 lakhs in traditional PMS.

MF-Only PMS can create an alternative in between these two systems. In this, investors will get the benefit of mutual fund-based portfolio management through experts but will not have to invest directly in shares. So, professional portfolio management can be easily accessible to more investors.

The key objectives of this proposal are:

• To create a new alternative between self-managed mutual funds and traditional PMS.
• To provide an opportunity to professionally manage mutual fund-based portfolios.
• To make PMS-like services accessible to more people at a lower investment.
• To create more organized and customized portfolio management opportunities for investors.
• To increase new and easy investment options for investors.

MF-Only PMS vs Traditional PMS

Feature	Traditional PMS	Proposed MF-Only PMS
Minimum Investment	₹50 lakh	₹25 lakh
Investment Products	Stocks, Bonds, and Securities	Mutual Funds, ETFs, and SIFs
Portfolio Management	Direct investment in securities	Mutual fund-based portfolio management
Portfolio Ownership	Individual	Individual
Investment Style	Direct investing	Mutual fund investing
Suitable For	High-net-worth investors	Investors seeking professional mutual fund management

There are some important differences between MF-only PMS and traditional PMS. The biggest change is the proposal to reduce the minimum investment amount to ₹25 lakhs. Besides, traditional PMS invests directly in shares and other securities. But in MF-Only PMS, investments will be limited to mutual funds, ETFs, and SIFs only.

Although in both cases the portfolio will be managed individually, the investment methodology and type of assets used will be different. So, investors will be able to choose the appropriate option as per their needs.

What Changes for Investors Under the Proposed MF-Only PMS?

According to the SEBI proposal, investors can get some new benefits when the MF-Only PMS is introduced. The biggest change is the proposal to reduce the minimum investment amount from ₹50 lakh to ₹25 lakh. So, more people will be able to come under the scope of this service.

Here, the portfolio manager will choose different mutual funds as per the investor’s set goals and will also make changes from time to time. In this, the investor will not have to take each decision separately. This can be convenient for those who cannot monitor their portfolio regularly.

Another important change is the opportunity to create customized portfolios. The portfolio can be arranged as per the investor’s risk tolerance, financial goals, and investment horizons. Along with this, the portfolio will be monitored regularly and rebalanced as needed.

This new system is mainly for those who do not want to invest directly in shares but want a professionally managed mutual fund portfolio. However, it is still a proposal. The full structure will be clear only after the final rules are implemented.

How will the Fee Structure of MF-Only PMS Work?

Investing in MF-Only PMS involves not only the portfolio manager’s fee but also the mutual fund’s own expenses. So, it is important to understand the total cost before investing. Not all portfolio managers’ fees are the same. Charges may vary based on the type of service and the institution’s policy.

The key points of the fee structure are:

• The expense ratio of the mutual fund will remain the same.
• The portfolio manager can charge a fixed management fee.
• They can also charge a performance-based fee.
• There may be a combination of both fixed fees and performance-based fees.
• SEBI has proposed a maximum fixed management fee of 2.5% of the assets under management (AUM).
• Before investing, it is important to calculate the total fee and other expenses carefully.
• The charges of different portfolio managers may vary, so it is better to compare and decide.

What will not Change for Investors in this Proposal?

Although MF-Only PMS is a new system, some things will remain the same.

• Investment will remain only in mutual fund-based products.
• Market risks will remain the same. Even with a portfolio manager, profits are not guaranteed.
• The current capital gains tax rules will apply when mutual fund units are sold or redeemed.
• In the case of mutual funds that have an exit load, that charge may still be applicable.
• Even if the portfolio is professionally managed, there is no guarantee of high returns.
• Investors should regularly review the performance of their portfolio.
• It is important to consider not only the potential returns but also the total costs.
• It is most important to decide according to your financial goals and risk tolerance.

What Factors Should You Consider Before Choosing an MF-Only PMS?

MF-Only PMS may not be suitable for everyone. There are a few important things to consider before investing. This will help you understand whether this service is suitable for your financial goals and investment style.

Consider these things before investing:

• Compare the total investment costs with other options.
• Understand the portfolio manager’s fee model.
• Find out how often the portfolio will be rebalanced.
• Review the manager’s investment strategy and reporting methods.
• Consider whether this service offers additional value compared to investing in mutual funds directly.
• Read all terms, fees, and service descriptions carefully before investing.

If necessary, compare the services and charges of multiple portfolio managers and decide.

How can Enterslice help with Compliance?

SEBI rules and guidelines change over time. So, it is very important for financial institutions, portfolio managers, and other service providers to comply with the regulations. Enterslice helps businesses ease this process by providing a variety of compliance and regulatory services. Our expert team provides advice as needed, helps prepare documents, and provides accurate guidance on the latest SEBI regulations.

Our Services:

• Provide SEBI-related Regulatory Advisory Services.
• Necessary assistance regarding SEBI compliance.
• Assistance in understanding and following the rules of Portfolio Management Services (PMS).
• Tailored advice for businesses through financial regulatory consulting.
• Assistance in preparing the necessary compliance documentation.
• Guidance on changing SEBI regulations and new compliance requirements.
• Helping financial service providers mitigate regulatory risks.

Conclusion

The MF-Only PMS proposed by SEBI is a new investment option. It is not a replacement for conventional mutual funds or traditional PMS but rather an additional opportunity. It can provide the benefits of a professionally managed mutual fund portfolio for some investors. However, it may also involve additional fees and other costs. Therefore, it is important to understand the fee structure, your financial goals, and the true value of this service well before investing.

Similarly, it is also important for financial institutions and service providers to comply with the changed SEBI norms. Enterslice can provide reliable support to businesses and financial professionals through its compliance and regulatory services.

Helpful Questions About SEBI’s Proposed MF-Only PMS