MF-Only PMS: Will it be the Next Big Shift in Wealth Management?

Mutual funds solve one problem. Investors still have another

Every mutual fund manager focuses on managing their own scheme. Nobody is responsible for managing your overall portfolio. That responsibility usually falls on the investor.

And that's where things often go wrong. Most investors don't struggle because they picked a bad fund. They struggle because they build a bad portfolio.

Some own five large-cap funds believing they are diversified. Others continue SIPs into overheated market segments because last year's winners still dominate headlines. Many forget to rebalance altogether.

The result?

A portfolio that slowly drifts away from the investor's original financial goals. MF-only PMS attempts to solve exactly this problem.

Instead of selecting individual stocks, the portfolio manager would select, combine, and actively manage mutual funds as building blocks of a personalised investment strategy.

The biggest winner could be asset allocation

Ask any experienced wealth manager what drives long-term returns. The answer is rarely stock selection. It's asset allocation.

Numerous studies over decades have shown that deciding how much to allocate to equities, gold, and fixed income has a far bigger impact on long-term portfolio outcomes than constantly hunting for the next multibagger.

Yet most investors spend hours researching funds and almost no time deciding whether they should hold 80% equity or 60%.

This is where MF-only PMS could genuinely add value.

Instead of asking, "Which flexi-cap fund should I buy?" the better question becomes, "How much should I allocate to equity, gold, and debt today?"

The portfolio manager can then implement that view using carefully selected mutual funds.

Equity remains the growth engine

For long-term wealth creation, equity continues to be the primary asset class. But even within equities, market cycles constantly change.

Sometimes large caps lead. Sometimes mid and small caps outperform. At other times, international diversification becomes valuable.

Individual investors often react after the move has already happened. Professional portfolio management allows allocations to evolve with valuations, earnings outlook, and broader market conditions rather than emotions.

That doesn't mean frequent trading. It means disciplined portfolio construction.

Gold deserves a permanent place

If there is one lesson investors have repeatedly learnt over the past decade, it's that gold is no longer just jewellery. It has become an important portfolio diversifier. Gold typically behaves differently from equities during periods of uncertainty, geopolitical tensions or market corrections.

Unfortunately, many investors either ignore gold completely or suddenly rush into it after prices have already rallied sharply. An MF-only PMS could allow gold exposure to be maintained as a strategic allocation rather than an emotional trade.

Whether through Gold ETFs or Gold Mutual Funds, allocations can be increased or reduced based on the broader portfolio objective instead of market headlines.

The objective isn't to maximise returns from gold. It's to improve the overall portfolio experience.

What about fixed income?

Debt may not generate excitement at dinner conversations. But it quietly performs one important job. It stabilises portfolios.

For investors approaching important financial goals or those seeking lower volatility, high-quality debt funds can provide liquidity and cushion equity market declines.

But for long-term wealth creation, equities remain the primary driver, with gold acting as an effective diversifier. Debt adds value depending on an investor's age, cash flow needs, and risk profile.

Where MF-only PMS could genuinely help

In my view, the biggest beneficiaries are unlikely to be first-time investors.

Many investors who already have Rs 25 lakh or more invested across multiple mutual funds typically face familiar challenges:

• Too many schemes accumulated over several years.
• Portfolio overlap across categories.
• No clear asset allocation framework.
• Delayed rebalancing.
• Emotional decision-making during volatile markets.
• Difficulty keeping track of changing market cycles.

A discretionary MF-only PMS may allow a professional manager to monitor, rebalance, and execute changes without waiting for the investor to approve every transaction. That speed can be valuable when market conditions change rapidly.

Unlike a traditional investment adviser, who primarily provides recommendations, a PMS structure can implement agreed investment decisions within the client's mandate.

But investors shouldn't assume it's automatically better

Professional management has a cost. Even though the underlying investments may be direct mutual funds, the portfolio manager would charge a management fee.

The regulator has proposed capping the management fee for MF-only PMS at 2.5% of assets under management under the new framework.

That means investors should ask some important questions before signing up.

• Can the manager demonstrate a consistent asset allocation process?
• Is the investment philosophy disciplined rather than driven by market forecasts?
• How often is the portfolio rebalanced?
• Will the manager chase recent winners or follow valuation-driven allocation?
• Most importantly... Will the value added justify the fee after taxes and expenses?

The answers matter far more than glossy presentations.

A positive step for India's wealth management industry

For years, India's wealth management ecosystem had two extremes.

At one end were DIY mutual fund investors managing everything themselves. At the other were traditional PMS products requiring Rs 50 lakh or more, often focused on concentrated stock portfolios. There was very little in between. MF-only PMS has the potential to bridge that gap.

It recognises that many affluent investors don't necessarily want direct stock portfolios. They want someone experienced to manage their mutual fund portfolio with discipline, objectivity, and accountability.

If executed well, this framework could also encourage a gradual shift from commission-driven product selling towards fee-based portfolio management, where the focus moves from selling individual schemes to managing outcomes.

The regulator has also proposed safeguards such as separation between distribution and MF-PMS activities to reduce conflicts of interest.

Final Word

SEBI's proposal isn't about reinventing mutual funds. It's about recognising a simple reality.

Choosing good mutual funds is only half the job. Building the right combination, maintaining the right asset allocation, reducing portfolio clutter, and staying disciplined through market cycles is often the harder half.

For investors with sizeable portfolios who value professional oversight but don't necessarily want concentrated stock portfolios, MF-only PMS could become an attractive middle path.

As always, success won't depend on the structure alone. It will depend on the quality of the portfolio manager, the discipline of the investment process, and whether decisions continue to be driven by long-term wealth creation rather than short-term market noise.

At the end of the day, investors don't build wealth by owning more funds. They build wealth by owning the right portfolio.

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.