The Securities and Exchange Board of India's (SEBI) decision to allow portfolio management services (PMS) companies to invest in foreign securities could unlock significant growth opportunities, but talent acquisition remains a critical constraint. According to Mint, Anshul Sharan, co-founder and CEO at quantitative PMS firm Ametra Investment Managers Pvt. Ltd., noted that "the talent exists, but experienced professionals who combine global market knowledge with the needs of Indian PMS clients are a relatively small pool." The capital markets regulator approved the new regulatory framework on 24 September, allowing discretionary and non-discretionary PMS firms to invest in foreign securities including listed equity, debt, overseas mutual funds, ETFs, and index funds. Shobhit Mathur, co-founder at wealth-tech platform Ionic Wealth, emphasized that "the ecosystem will need to evolve and grow. A lot of mutual fund managers handling overseas assets may decide to become PMS managers." However, Vikas Gupta, CEO of OmniScience Capital Advisors, believes there is already sufficient talent pool, citing foreign-educated MBAs, Indian MBAs with adaptable mindset, and global capability centres of foreign banks in India as potential sources.
The new PRIM framework broadens the definition of portfolio construction by allowing portfolio managers to use direct mutual fund plans, ETFs, index funds and SIFs to build customised portfolios, rather than being largely centred around direct securities. According to The Economic Times, this opens up opportunities for all mutual fund distributors and independent financial advisors to take PMS route to move from advisory to management. The framework provides greater discretion in portfolio management compared to traditional RIA structures, while also creating scope for building and publishing performance track records. Portfolio managers can start from allocation, using index funds and ETFs as low-cost core, active funds where managers have shown persistent skill, and SIFs for 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, helping investors stay invested through full market cycles. Fixed management fees under PRIM are capped at 1% of client AUM, unlike conventional PMS where fees can be performance-based with no caps, and unlike mutual funds where costs are primarily the scheme's expense ratio.
SEBI has expanded the investment universe by allowing PMS managers to use derivatives for hedging or return enhancement with exposure up to 1.25 times client AUM. As per The Economic Times, this framework should not be viewed simply as an avenue to increase leverage, but gives managers another tool for hedging, portfolio construction and efficient exposure management. The first responsibility is to treat 1.25 times as a ceiling, not a target, with managers needing clear limits on gross and net exposure monitored daily, stress-testing portfolios against sharp overnight moves, and planning for margin and liquidity. Equally important is disclosure, with clients understanding how derivatives are used and how the portfolio could behave in a bad month. The framework also enables PMS managers to invest in foreign securities, including overseas equities, debt, REITs, mutual funds, ETFs, index funds and foreign government debt. Global exposure gives access to sectors that are thin in India, such as semiconductors and global technology, hedges against long-term rupee depreciation, and reduces portfolio dependence on a single economic cycle. PMS managers can now also participate in IPOs and primary debt issuances, specified overseas investments, including listed equity and debt, REITs, mutual funds, ETFs, index funds and foreign government securities, subject to applicable rules.
SEBI has proposed the concept of Independent Fund Managers, who can manage and operate client portfolios in association with a registered portfolio manager. According to The Economic Times, this framework could make the PMS ecosystem more open to specialised investment talent by allowing an investment manager with differentiated strategy and client base to manage money without bothering about operations and compliance burden. The registered portfolio manager retains regulatory accountability, while the independent manager can focus more closely on investment management. 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, this could encourage more specialised strategies and potentially lower barriers for experienced investment professionals to build businesses while maintaining appropriate regulatory framework and investor safeguards. As per ETMarkets PMS Talk, the IFM framework could create a platform-based PMS ecosystem, with investment professionals focusing on research, portfolio construction, and client outcomes, while an established registered portfolio manager provides dealing infrastructure, compliance, custody, technology, and reporting.
Industry experts emphasize the need for greater emphasis on risk-adjusted returns, drawdowns, consistency and portfolio behaviour rather than just one-year performance. As per The Economic Times, Sandeep Jethwani noted that one-year returns mostly tell you which style suited the last 12 months, with the strategy at the top of the table after a rally often being the one with the deepest fall when conditions change. Investors experience every rise and fall along the way, not the average return, with a portfolio that falls 35% testing anyone's patience and many exiting at precisely the wrong time. 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. According to ETMarkets PMS Talk, PMS strategies should be assessed through rolling multi-year alpha, drawdowns, downside capture, recovery periods, volatility, concentration, liquidity, turnover, tax efficiency, and consistency across market cycles. PMS's core distinction is personalisation, managing portfolios at an individual client level with greater customisation around asset allocation, risk tolerance, liquidity requirements, tax considerations and investment preferences. While RIAs and research analysts see clear advantages in the new MF-only PMS framework, distributors are awaiting greater clarity before deciding whether it merits a shift, with concerns about whether they would be allowed to continue distribution alongside PMS operations. The industry that emerges in five years should be judged by client outcomes and retention, not only by AUM, with incentive alignment in PRIM expected to drive both growth together.
