India's Portfolio Managers Industry At Crossroads As Themes And Return Decline
India’s affluent investors considering Portfolio Management Schemes (PMS) may need to reassess their choices—not due to any inherent flaw, but because these schemes appear to be running out of compelling investment ideas.
PMS providers are at a crossroads. Over the past year, Assets Under Management (AUM) have declined, returns have been mediocre, and viable investment avenues are shrinking.
According to data from the Securities and Exchange Board of India (SEBI), PMS AUM stood at Rs 4.37 lakh crore as of April 2025, down from a peak of Rs 4.69 lakh crore in August 2024.
Surprisingly, a significant portion of PMS assets is being invested in mutual fund schemes. As of April 2025, 19.5% of PMS AUM was allocated to mutual funds—primarily debt funds. This raises a critical question: if nearly a fifth of PMS portfolios are invested in mutual funds, why not invest directly in them?
At the end of April, nearly $10 billion (Rs 85,000 crore) was parked in mutual funds by PMS providers, likely yielding nominal returns. Meanwhile, the average AUM per client dropped 11.3% year-on-year to Rs 2.27 crore, reflecting growing investor fatigue and stagnant returns.
PMS providers typically charge high fees—either fixed, profit-sharing, or hybrid structures:
Fixed Fees: 0.25% to 2.5%
Profit Sharing: 13.75% to 22% above a hurdle rate
Hybrid: 0.5% to 2.5% fees plus 5% to 35% profit sharing
The hurdle rate usually ranges from 6% to 10%, depending on the scheme and benchmark.
With such high fees, PMS providers are struggling to identify attractive investment themes and companies. At their AUM peak in September 2024, nearly 21%, or Rs 96,056 crore, was invested in mutual funds—prompting investors to question the value of paying premium fees for what could be achieved through direct mutual fund investments.
The total AUM of portfolio managers, including EPFO, stood at Rs 32.08 lakh crore. EPFO alone contributed Rs 27.71 lakh crore—a 15.6% increase—compared to an 8.5% rise in non-EPFO AUM. Much of this EPFO money is invested in government debt securities and ETFs, as mandated by regulation.
PMS providers argue that their fee structures are justified due to distribution costs. Many rely heavily on distributors to acquire clients. With a minimum investment requirement of Rs 50 lakh, investors are increasingly exploring alternative avenues.
This shift has prompted many PMS providers to seek mutual fund licenses and launch Specialised Investment Funds (SIFs)—a new vehicle introduced by SEBI. SIFs aim to bridge the gap between traditional mutual funds and PMS, offering more flexible strategies under mutual fund-like regulatory oversight.
SIFs come with lower fees than PMS and limited exit windows (monthly), unlike the open-ended nature of mutual funds. They are designed for sophisticated investors willing to take on higher risks for potentially higher returns.
The Big Question
Why should investors continue with PMS schemes when mutual funds offer lower costs, greater transparency, and—often—better performance?
