New PMS rules can lead to 5X client growth; 2,000 managers in a decade: APMI’s new leadership

Reports coming in for today mention that Days after the Securities and Exchange Board of India (SEBI) approved sweeping structural changes to portfolio management regulations, newly appointed APMI Chairman Vikas Khemani and Vice-Chairman Sandeep Jethwani outlined the industry's expansion roadmap at the APMI Conference in Mumbai.

The regulatory updates come as the domestic portfolio management industry scales past Rs 44.4 lakh crore in assets under management (AUM), backed by an active client base of roughly 2.2 lakh accounts. Discretionary portfolios keep account for the vast majority of the asset pool, though industry leaders emphasise that expanding retail participation stays a key milestone.

At the centre of the near-term outlook is the newly introduced Portfolio Managers Route for Investing in Mutual Fund Units (PRIM). By lowering the minimum entry ticket size to Rs 25 lakh, the framework creates a bridge between mutual funds and traditional portfolio management services.

"The single biggest change is PRIM. It brings the ticket size down to Rs 25 lakh. I think this can 5X the number of clients, from roughly 2 lakh today to 10 lakh, over the next three to four years," Jethwani stated in a conversation with Moneycontrol. "The opportunity to reach 10 lakh clients by 2030 exists because of PRIM."

The revised regulations additionally expand the investible universe, allowing managers to allocate towards to-be-listed securities, international assets and up to 10% in unlisted investment-grade bonds.

"So you get expansion on two axes at the same time: more clients and elevated AUM per client. I won't be surprised if industry AUM additionally doubles in the same three-to-four-year window," Jethwani further noted.

Weighing in on primary issuances, Jethwani noted that participating in IPOs and debt offerings marks an operational upgrade.

"Earlier you could not even apply. This is a clear step forward. The bigger practical opportunity is in bonds and InvITs, where confirmed allotments are more common. The ability to invest in to-be-listed securities is useful across categories, not only listed equities."

Even with equity markets trading in tight ranges over recent years, portfolio strategies have continued to generate steady alpha across small caps, mid-caps, debt and alternative asset classes.

Jethwani projected firm medium-term performance as broader market underperformance clears.

"As markets begin to catch up after this long period of underperformance, PMS strategies should benefit. I would not be surprised to see 15 to 18% CAGR purely from mark-to-market expansion over the next five years, leaving aside fresh inflows." Retail participation and risk

Managing risk stays central as ticket sizes decrease. Addressing how retail participants under PRIM will be safeguarded, Jethwani explained that the underlying structures inherently limit volatility.

"Under PRIM, investments will largely be in mutual funds, which already carry broad diversification. Risks and volatility are as a result softer, which is precisely why the regulator felt comfortable reducing the ticket size."

For traditional PMS categories above the Rs 50 lakh threshold, the focus shifts towards investor education and asset accessibility.

"In the traditional Rs 50-lakh-plus category the focus has to be on awareness. There is a wide spectrum of strategies available, small- and mid-cap, flexi-cap, debt, InvITs, gold and silver, and so on. The real transition we need is for PMS to become a true wealth-management platform: every asset class a client might want to own should be accessible through a PMS."

Building capacity for the next decade

Zooming out to a 10-year horizon, Khemani emphasised that domestic capacity requires long-range structural planning.

"In the US there are 5,000 hedge funds. India is a huge market. From both a SEBI and an industry perspective, we have to build capacity thinking 10 years out," Khemani stated. "Ten years down the line we might have 2,000 portfolio managers. What do we need to do today for that? That is real capability building."

That capability building involves addressing operational friction for boutique managers outside major financial hubs.

"One of the biggest challenges small firms face is knowledge of compliance. They don't want to go against the rules, but they don't have the talent. Someone sitting in a small town often cannot find a compliance officer or simply doesn't have the knowledge," Khemani explained.

SEBI's updated framework allows individual portfolio managers to plug into broader professional platforms and outsource backend infrastructure.

"He only has to make the investment decisions; the rest of the activity can be taken care of by the larger platform. That will allow many new fund managers to come in and say, 'I just want to manage the money.'"

The regulatory updates additionally introduce Independent Fund Managers.

"The changes for smaller fund managers are fairly material, with dealing-room requirements and a few other operational aspects having been relaxed," Jethwani noted. "More importantly, the introduction of Independent Fund Managers is new. It did not exist even a month ago. It allows talent who do not want to build the entire backend infrastructure to partner with a registered portfolio manager and still offer their own strategies."

When asked around operational contingencies if an Independent Fund Manager exits, Jethwani stated the final notifications will provide clarity.

"Those operational details are still awaited in the final regulations. The question of whether the client gets an exit option or whether the portfolio can be reallocated to another IFM will be clarified once the detailed framework is notified."

Making distribution and onboarding easier

To drive distributor onboarding and accessibility, APMI is rolling out targeted industry resources.

"Two priorities stand out. First, onboarding has to become materially easier; we are pushing technology hard on that front. Second, distributor awareness and access. We have just released a booklet, will run more sessions, and have simplified the empanelment process so a distributor can look at multiple portfolio managers and get onboarded quickly. These are industry-specific initiatives that do not exist in the same form elsewhere," Jethwani stated.

Despite asset expansion, both leaders reiterated that retail penetration must deepen beyond tier-one centres.

"While AUM has grown, the number of market participants has been slow to grow. That is the real focus now, how do we get more talent, how do we get more market participants, how do we create awareness. That is why we have started going to B-class cities, reaching outside Mumbai," Khemani emphasised.

More asset classes, easier trading

On ongoing policy discussions, Khemani noted that dialogue with SEBI covers several operational items.

"One of the things we have been discussing is same-day buy and sell. Today I cannot buy and sell the same day even if I already have the stock in my custody. That is being worked on. Ease of onboarding is additionally moving with a new circular. We are additionally pushing to get more asset classes, such as BB, BB+, BB- bonds and so on, into the PMS universe."

Addressing commercial fee structures under the 100-basis-point cap, Jethwani indicated that established institutional players stay unaffected.

"Our actual fees are already softer than 1%. We are not hitting the cap. It helps to open the service to a much wider segment of clients. That is the bigger opportunity."

On international allocations, Jethwani addressed considerations around currency movement.

"The real test will be client adoption. My personal view is that it is better for a client to have international exposure managed by a professional who understands their overall portfolio than for them to buy foreign stocks on their own. Once clients start seeing the value of that professional overlay, adoption should follow."