The Rs 50 lakh PMS gate: why SEBI keeps discretionary portfolio management out of small-investor reach

A SEBI-registered portfolio manager cannot take you on as a client with less than Rs 50 lakh. Regulation 23(2) of the SEBI (Portfolio Managers) Regulations, 2020, last amended on 3 September 2025, bars a manager from accepting "funds or securities worth less than fifty lakh rupees" from a client. On 14 September 2026 that remains the operative rule, even though SEBI's consultation paper of 23 July 2026 has floated a mutual-fund-only variant at Rs 25 lakh.

The floor shapes who uses portfolio management services. SEBI's consultation paper on a comprehensive review of the PMS rules counts 2.19 lakh PMS clients as on 31 May 2026, served by 515 portfolio managers with industry assets under management of Rs 42.61 lakh crore. For an investor holding Rs 20 lakh or Rs 40 lakh, discretionary PMS is simply closed; for those above Rs 50 lakh, the choice against mutual funds turns on ownership, fees and the timing of tax.

What Regulation 23(2) Actually Requires

The first proviso applies the minimum to new clients and to fresh investments by existing clients. The ticket need not be cash: SEBI's FAQ on portfolio managers dated 20 September 2024 confirms that a manager can accept securities worth at least Rs 50 lakh, so an existing share portfolio can be transferred in rather than sold.

The floor is an entry test, not a running one. The same FAQ allows partial withdrawals only while Rs 50 lakh stays invested, but requires no top-up if the portfolio's value falls below Rs 50 lakh. A Rs 52 lakh portfolio that slips to Rs 45 lakh in a correction stays within the rules; a Rs 5 lakh withdrawal from that same Rs 52 lakh portfolio does not.

Two groups sit outside the gate. Since 3 August 2021 the minimum has not applied to an accredited investor, subject to disclosure and agreed terms, and it does not apply to a co-investment portfolio manager serving investors of the Category I or II alternative investment funds it manages. A "large value accredited investor" signs up for at least Rs 10 crore and may hold up to 100% of the mandate in unlisted securities under Regulation 24(4A).

Accreditation is itself under review. In a press release dated 13 August 2026, SEBI proposed a new securities-market-assets test of Rs 5 crore for individuals, alongside the existing income and net-worth criteria, which it estimated could widen the eligible pool to around 4 lakh investors. Comments closed on 3 September 2026.

Why SEBI Draws the Line at Rs 50 Lakh

SEBI's circular of 27 February 2025 creating the Specialized Investment Fund sets out the logic: regulation is segmented by product complexity, investor sophistication and minimum investment size, and becomes progressively more flexible as one moves from mutual funds to PMS to alternative investment funds.

PMS sits near the flexible end. Regulation 23(1) requires a discretionary manager to run each client's money individually, in a manner that does not take on the character of a mutual fund; Regulation 22(11) permits fixed or return-based fees without any guaranteed return; and non-discretionary or advisory mandates may put up to 25% of assets in unlisted securities under Regulation 24(4). In return, the manager needs a net worth of at least Rs 5 crore under Regulation 9, acts as a fiduciary, segregates each client's securities and, unless it only advises, must appoint a custodian under Regulation 26.

SEBI has added rungs below the floor rather than lowering it. The Specialized Investment Fund (SIF), in force since 1 April 2025, carries a Rs 10 lakh minimum across strategies at PAN level, as our explainer on the SIF floor details. The July 2026 paper proposes an MF-only PMS at Rs 25 lakh that would invest solely in direct plans of mutual funds, ETFs and SIFs, with a Rs 2 crore net worth requirement and a fixed fee capped at 2.5% of the client's AUM, while its draft regulations keep Rs 50 lakh for every other PMS client.

Side-by-Side Comparison

Above Rs 50 lakh, the choice between a discretionary PMS and mutual fund schemes rests on the differences below, drawn from the 2020 regulations and SEBI's Master Circular for Portfolio Managers dated 16 July 2025.

Ownership also affects switching. Because PMS securities sit in a segregated account in the client's name, SEBI's July 2026 paper notes that moving between portfolio managers currently requires a new demat account each time, and it has sought comments on making accounts portable. Distributors can be paid only on a trail basis out of the manager's fees under paragraph 2.4 of the master circular, and a PMS buying fund units for you must use direct plans under Regulation 24(5).

What a PMS Costs Under SEBI's Fee Rules

No upfront fee is allowed and brokerage is charged at actuals. Operating expenses excluding brokerage are capped at 0.50% a year of the client's average daily AUM under paragraph 6.1.3.3 of the master circular, or at most Rs 25,000 a year on Rs 50 lakh, and the July 2026 paper proposes to clarify that the cap excludes statutory levies.

Performance fees follow the high-water-mark principle, applying only to gains above the highest value previously reached. SEBI's illustration in paragraph 6.1.3.6 uses the minimum ticket:

In year three the fee applies to Rs 5 lakh rather than the full Rs 10 lakh recovery from Rs 55 lakh. Where a performance fee applies, clients on-boarded from 1 October 2024 must also receive multi-year fee illustrations built on the high-water mark.

Exit loads are capped under paragraph 6.1.4 at 3% of the amount redeemed in year one, 2% in year two and 1% in year three, with none after three years, so a full year-one exit from Rs 50 lakh can cost up to Rs 1.5 lakh. Large value accredited investors negotiate exit terms bilaterally, and the proposed MF-only PMS would switch PMS exit loads off to protect clients from paying exit loads twice.

Every client agreement must include a fee annexure applying all charges to a sample Rs 50 lakh portfolio over one year in three scenarios: a 20% rise, a 20% fall and no change. The lumpsum calculator lets you compare the same Rs 50 lakh at returns one percentage point apart over ten years.

Tax Treatment

In a PMS you own the underlying securities directly, unlike pooled mutual fund units, so a capital gain arises in your own hands on every sale the manager makes. For listed equity, transfers on or after 23 July 2024 attract short-term capital gains tax at 20% and long-term capital gains tax at 12.5% on gains above Rs 1.25 lakh a year.

The dividing line is 12 months: the Income Tax Department's ITR-2 FAQs treat listed securities and units of equity-oriented mutual funds as long-term when held for more than 12 months. In a PMS that clock runs separately for each share from the date the manager bought it, while a mutual fund investor faces capital gains only on redeeming or switching units. Higher churn can therefore raise the incidence of 20% short-term gains in a PMS compared with a buy-and-hold mutual fund.

The figures ignore surcharge and assume no other equity gains; the long-term row deducts the Rs 1.25 lakh exemption before tax of Rs 46,875 plus cess, leaving a Rs 55,250 gap that comes purely from holding period. The exemption is an annual allowance for the taxpayer, shared between PMS gains and fund redemptions. The capital gains calculator and the LTCG on equity calculator can model your own mix.

For AY 2026-27, the ITR-2 FAQs also note that capital gains no longer need to be reported separately for transfers before and after 23 July 2024, a relief for PMS clients whose returns list every trade.

Who Should Pick Which

The Rs 50 lakh floor makes the first cut. The table maps investable amounts to the routes open under the rules in force on 14 September 2026; it describes eligibility, not a recommendation of any product or security.

Below Rs 50 lakh, a mutual fund portfolio is the regulated route to professional management, and the SIP calculator shows how monthly contributions compound. From Rs 10 lakh, a SIF adds long-short strategies within the mutual fund framework, but under the 27 February 2025 circular a redemption cannot take your total below Rs 10 lakh, and after a fall in NAV pushes you below it you may only redeem everything that remains.

Above Rs 50 lakh, a PMS may suit investors who want securities held in their own name, a mandate built around existing holdings, or time-weighted reporting against a prescribed benchmark, provided they accept layered costs and the tax drag of short-term churn. Accredited investors skip the floor altogether, which is why the 13 August 2026 accreditation proposal matters to those just below it.

Legacy clients should note one proposal: pre-2020 portfolios grandfathered at the old Rs 25 lakh minimum would have to reach Rs 50 lakh within 36 months of new regulations taking effect, unless they are clients of an MF-only PMS. Fund-heavy investors can also read our explainer on SEBI's 2026 mutual fund re-categorisation.

FAQ

Can I invest less than Rs 50 lakh in a PMS?

Only as an accredited investor, whom Regulation 23(2) has exempted from the minimum since 3 August 2021 subject to disclosure and agreed terms, or through a co-investment portfolio manager serving investors of the AIFs it manages.

Can I use shares I already own to meet the minimum?

Yes. SEBI's FAQ on portfolio managers dated 20 September 2024 says a manager may accept securities with a minimum worth of Rs 50 lakh instead of cash.

What happens if my PMS portfolio falls below Rs 50 lakh?

If a market fall causes it, no top-up is required, according to the same SEBI FAQ. Partial withdrawals, however, are allowed only while Rs 50 lakh remains invested.

Has SEBI cut the PMS minimum to Rs 25 lakh?

No. SEBI's consultation paper of 23 July 2026 proposes Rs 25 lakh only for a new MF-only PMS investing in direct mutual fund plans, ETFs and SIFs. Comments closed on 13 August 2026, and as of 14 September 2026 the regulations remain as last amended on 3 September 2025, with the Rs 50 lakh floor intact.

How much can a PMS charge if I exit early?

Under SEBI's Master Circular for Portfolio Managers of 16 July 2025, up to 3% of the amount redeemed in the first year, 2% in the second and 1% in the third, with nothing payable after three years.

Is a PMS taxed differently from a mutual fund?

The rates match: 20% on listed equity held for up to 12 months and 12.5% on long-term gains above Rs 1.25 lakh a year, for transfers on or after 23 July 2024. The timing differs, because every PMS sale is taxed in your hands while mutual fund gains arise only when you redeem or switch units.