Affluent investors get more choice

Last week, Sebi approved Securities and Exchange Board of India (Portfolio Managers) Regulations 2026, which will allow portfolio management services (PMS) firms to invest client funds in MF schemes, SIFs, investment-grade unlisted debt securities, IPOs, primary market debt issuances, and exchange-traded derivatives. This effectively widens the funnel for retail investment across market segments while providing scope for customisation. Unlike MFs that offer a one-size-fits-all approach to investment, PMS firms tailor investment strategies to financial goals, risk tolerance and time horizon. This freedom was limited by the portfolio PMS firms could curate for their clients. Now, they can provide a much bigger suite to investors and be able to differentiate their services better.

Customisation in PMS comes at a cost, with traditional services starting at investments upwards of ₹50 lakh. Fees range from 1% to 3% annually of the value of the portfolio, and a share of the profit if it crosses a hurdle rate. Sebi has lowered the entry barrier to ₹25 lakh for PMS firms that create portfolios made up exclusively of MFs and ETFs for their clients. The move helps MFs, too, by widening their distribution channel. Since PMS firms provide analysis, tracking and administrative support, they can complement performance of MF managers. This adds a layer of value to the MF industry offering. PMS has more discretion over independent investment decisions than MF distributors, which is likely to emerge as another service differentiator.

Sebi has created a mezzanine service through PMS for the country's swelling ranks of retail MF investors. A large chunk of the money flowing into MFs comes in the form of SIPs that can be served better by customised advice on portfolio management. Execution is an area where retail investors lag behind professional managers, and they will be ready to pay for the service. Better integration among financial intermediaries should improve market efficiency.