SEBI Considers Overhaul of Portfolio Management Services Framework, Examines Gift and Donation Provisions for Mutual Funds

SEBI Undertakes Comprehensive Review of Portfolio Management Services Framework

The Securities and Exchange Board of India (SEBI) is undertaking a comprehensive review of the Portfolio Management Services (PMS) framework in consultation with the Association of Portfolio Managers in India (APMI) to "re-ignite growth" in the segment. This review is aimed at revitalizing the PMS space and ensuring that it remains a viable option for investors.

Amarjeet Singh, a whole-time member of SEBI, recently addressed the Wealth and Capital Market Summit organized by the Indian Chamber of Commerce. During his address, Singh announced that SEBI would soon float a consultation paper on the proposed reforms. The regulator is engaged in consultations with APMI to ensure that the proposed changes are effective in promoting growth in the PMS segment.

SEBI is currently in the consultation stage on issues related to donation, gifting, and third-party payments in mutual funds. The regulator is seeking to balance investor convenience with anti-money laundering safeguards. To this end, a consultation paper was issued on May 20, proposing a calibrated relaxation of the existing restrictions on third-party payments in mutual funds.

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Under the proposed framework, third-party payments may be permitted through "clean and auditable routes" in select cases, including salary deductions by employers for systematic investments by employees and payment of distributor commissions in the form of mutual fund units instead of cash. Listed companies, EPFO-registered firms, and asset management companies would be allowed to deduct a fixed amount from an employee's salary for investment in mutual fund schemes chosen by the employee.

In another proposal, AMCs may be allowed to pay trail commissions to empanelled distributors through mutual fund units. However, SEBI has proposed safeguards under which redemption proceeds and dividends would flow only into the verified bank account of the beneficiary investor or distributor, ensuring that no third-party cash exits are permitted.

Public comments on the consultation paper have been invited till June 10. Singh also announced that the regulator is examining a framework to facilitate charitable donations through mutual funds. Under the proposal, investors may be allowed to route part of their subscription amount, dividends, or redemption proceeds directly to not-for-profit organizations or instruments listed on the Social Stock Exchange.

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The consultation paper has proposed either dedicated schemes focused on social causes or embedded donation features within existing mutual fund schemes. SEBI is also exploring ways to simplify measures for overseas investors, who have sold Indian equities worth more than Rs 2.7 lakh crore between January and May 2026 so far.

Discussions are also being held with the mutual funds' body AMFI on creating a common platform for asset management companies (AMCs), where investors can collectively raise concerns and seek specific information from companies. This, in turn, will strengthen the AMCs' ability to seek details and disclosures from companies.