ETMarkets Smart Talk | 2-3 crore wealth creators could enter PMS: Sandeep Jethwani on PRIM and India’s wealth boom

India’s rapidly expanding wealth base could open up a massive new opportunity for the portfolio management industry, with as many as 2-3 crore Indian wealth creators potentially becoming eligible for the PMS ecosystem under SEBI’s new PRIM framework.

Sandeep Jethwani, Co-founder of Dezerv, believes the Rs 25 lakh entry point could significantly widen the addressable market for professional portfolio management.

PRIM allows managers to build customised portfolios using direct mutual funds, ETFs, index funds and SIFs, potentially bringing disciplined portfolio construction to a much broader investor base.


In this edition of ETMarkets Smart Talk, Jethwani explains how PRIM could reshape PMS, why global diversification is becoming increasingly important for Indian investors, and how the proposed Independent Fund Manager framework could bring more specialised investment talent into the industry.

He also makes the case for looking beyond one-year returns, arguing that drawdowns, recovery periods, consistency and risk-adjusted performance should play a much bigger role in how investors evaluate PMS strategies. Edited Excerpts:

Q) You called PRIM a significant step forward for the PMS industry. What is the biggest structural change this introduces for portfolio managers and investors?

A) PRIM gives portfolio management of mutual funds its own licence. Until now, a manager building fund portfolios worked within a framework built for stock portfolios, at a Rs 50 lakh minimum. PRIM is lighter to run and opens at Rs 25 lakh, bringing discretionary portfolio management within reach of a much wider set of investors.

The design is investor-first: direct plans, a fee capped at 1%, no exit loads and a 25% cap on group AMC schemes. Access to mutual funds is no longer the challenge for investors.

The challenge is building a sensible portfolio from them and staying with it through market cycles, and that is what PRIM addresses.

Q) PRIM allows PMS players to invest in direct mutual fund schemes, ETFs, index funds and SIFs. How do you see portfolio managers using these products differently from how a traditional mutual fund investor would?

A) A self-directed investor usually buys funds one at a time, on recent performance or a tip, and ends up with a dozen schemes that often hold the same stocks.

More importantly, they have no one to guide them through market ups and downs or keep them focused on their goals.

So they churn, exiting in corrections and chasing last year's winners. Picking well from over 2,000 schemes is already hard, and this churn erodes returns further. A portfolio manager starts from the allocation. Index funds and ETFs form a low-cost core, active funds go where managers have shown persistent skill, and SIFs add strategies a long-only fund cannot run.

The manager then tracks overlap, watches for style drift, rebalances when allocations move out of range and manages the tax cost of every switch.

Outsourcing these decisions to professionals is what helps the investor stay invested through the full cycle, which is when long-term returns are earned.

Q) With PRIM lowering the entry point to Rs 25 lakh and the investment universe expanding, do you expect the PMS industry to become significantly larger over the next three to five years?

A) Yes, the addressable base widens considerably. We estimate that 2 to 3 crore Indian wealth creators could have mutual fund portfolios between Rs 25 and 50 lakh, and PRIM is built for exactly this segment.

Separately, standard PMS gains room in foreign securities, unlisted debt and the Independent Fund Manager route. So the industry grows at both ends: a new entry point through PRIM, and a broader offering for existing PMS investors.

If PRIM gives these investors a disciplined portfolio and a clear view of how it is doing, they will stay, and that is what builds a durable category.

The industry that emerges in five years should be judged by client outcomes and retention, not only by AUM. If the incentive alignment in PRIM holds, I expect both to grow together.

Q) PMS managers will get greater flexibility in exchange-traded derivatives, with exposure allowed up to 1.25 times client AUM. What additional risk-management responsibilities does it create?

A) The first responsibility is to treat 1.25 times as a ceiling, not a target. Derivatives are useful for hedging and for adjusting exposure without disturbing the underlying portfolio. Used as leverage, they change the risk the client has signed up for.

This creates practical obligations. Managers need clear limits on gross and net exposure, monitored daily. They need to stress-test portfolios against sharp overnight moves as well as normal volatility.

Margin and liquidity planning matters, because collateral calls tend to arrive at exactly the moment markets are most stressed.

Equally important is disclosure. The client should understand, in plain terms, how derivatives are used in their strategy and how the portfolio could behave in a bad month. We welcome the flexibility, but the discipline around it has to grow with it.

Q) SEBI is also enabling PMS managers to invest in foreign securities, including overseas equities, debt, REITs, mutual funds, ETFs, index funds and foreign government debt. How important is global diversification becoming for Indian PMS portfolios?

A) It is becoming a core part of the portfolio. Most Indian portfolios are almost entirely concentrated in one market and one currency. That has worked well in recent years, but concentration is a risk even when it is rewarding.

Global exposure gives access to sectors that are thin in India, such as semiconductors and global technology.

It also hedges against long-term rupee depreciation, which matters for families with overseas education or travel goals, and it reduces the portfolio's dependence on a single economic cycle.

Until now, investors either relied on international funds limited by industry-wide overseas caps or invested through LRS on their own. But global markets ask for far deeper research: thousands more companies, plus currency and tax questions most Indian investors have not dealt with.

A portfolio manager can do that work and hold global assets within one coherent allocation, sized and rebalanced alongside everything else. Global works best as a planned, long-term allocation.

Q) SEBI has proposed the concept of Independent Fund Managers, who can manage and operate client portfolios in association with a registered portfolio manager. How could this change the PMS industry structure?

A) It separates investment talent from institutional infrastructure. Today, a capable fund manager who wants to run their own strategy has to build compliance, operations, dealing, reporting and custody arrangements from scratch. That cost keeps many good managers inside large institutions.

Under the IFM model, the manager focuses on the portfolio while the registered PMS provides the plumbing and carries full responsibility.

The investor safeguards are well thought through: fees go to the registered entity, orders run through its systems, clients get an exit if the IFM leaves, and APMI will maintain a central database.

Over time, I expect two things. The industry will see a wider range of strategies from independent talent. And well-built platforms will increasingly become hosts, which puts the onus on them to run rigorous due diligence, because their name and liability stand behind every manager they onboard.

Q) With mutual funds, SIFs, PMS, AIFs and wealth-management products increasingly overlapping in terms of the investor base, where do you see PMS's distinct role in the Indian wealth-management ecosystem?

A) The investor base overlaps, but the products do different jobs. Mutual funds and SIFs are pooled vehicles, each running a defined strategy. AIFs suit specialised or less liquid opportunities. They are all ingredients.

PMS is different because the investor owns the portfolio directly, in their own name, with complete visibility of every holding. It can be tailored to the individual: their tax position, existing holdings and liquidity needs.

With PRIM on the mutual fund side and a wider investment universe for standard PMS, portfolio management increasingly becomes the layer that assembles these products rather than competing with them.

Funds compete for allocation. The portfolio manager decides the allocation on behalf of the client. That is the distinct role: taking responsibility for the whole portfolio and how it behaves over time.

Q) Should the industry move towards greater emphasis on risk-adjusted returns, drawdowns, consistency and portfolio behaviour rather than just one-year performance?

A) Yes, and it is overdue. One-year returns mostly tell you which style suited the last 12 months. The strategy at the top of the table after a rally is often the one with the deepest fall when conditions change.

Investors experience every rise and fall along the way, not the average return. A portfolio that falls 35% tests anyone's patience, and many exit at precisely the wrong time, so they never earn the long-term return shown in the factsheet.

The metrics that matter are how much a portfolio falls in weak markets, how long it takes to recover, and how consistently it performs across rolling periods.

SEBI's decision to allow ratings verified by the Past Risk and Return Verification Agency in advertisements is a useful signal. Verified, risk-adjusted measures should become the standard language the industry uses with clients.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times.)