SEBI’s new PRIM framework: What investors need to know

Amit Kukreja, Founder of AmitKukreja.com, expects the Securities and Exchange Board of India’s (SEBI) new Portfolio Manager’s Route for Investing in Mutual Fund Units (PRIM) framework to appeal to high-net-worth individuals (HNIs), but believes its success will depend on whether it can deliver better risk-adjusted returns at a reasonable cost.

Kukreja said the framework could appeal to investors who want professional management of their investments without having to track multiple financial products themselves. However, he believes retail investors may be more cautious about committing ₹25 lakh at one go, particularly when the service involves additional fees.

“It might appeal to HNI community,” Kukreja said, adding that investors would need to assess whether the returns justify the additional expense.

The framework allows portfolio management services (PMS) providers to manage investors’ money through direct plans of mutual funds, exchange-traded funds (ETFs), index funds and specialised investment funds (SIFs). The minimum investment requirement is ₹25 lakh, compared with ₹50 lakh for conventional PMS.

Read Here | SEBI’s new PMS rules: What PRIM means for mutual fund investing 

PRIM framework: Costs will be a key factor

One of the key questions surrounding the new framework is whether investors will benefit enough from professional management to justify the additional cost.

Apart from the expense ratios charged by the underlying mutual funds and other products, investors may have to pay a separate management fee to the PRIM manager. A performance-linked fee could also apply if returns exceed a specified hurdle rate.

SEBI has capped the management fee at 1%, although this does not mean every manager will charge the maximum amount. The actual fee could vary depending on the service offered and the level of effort involved in managing the portfolio.

Kukreja believes the fee structure will need to be justified by the value delivered to investors. The portfolio should ideally generate returns above its relevant benchmark while managing risk effectively.

He also pointed out that the PRIM route will not involve distribution commissions, as investments will be made through direct mutual fund plans. However, the absence of distribution costs does not necessarily mean the overall expense will be lower, given the separate management fee and the possibility of performance-linked charges.

“The justification of cost only time will tell,” Kukreja said, highlighting the need to evaluate how effectively the framework can generate additional returns for investors.

Customised portfolios could be an advantage

The PRIM framework allows managers to combine eligible mutual funds, index funds and SIFs to create diversified portfolios suited to individual investors. The allocation and combination of products can be tailored to the client’s financial goals and risk appetite.

According to Kukreja, this could help investors who prefer to delegate portfolio decisions to a professional rather than manage multiple investments independently.

However, the framework will also require portfolio managers to handle operational responsibilities, including holding assets in demat accounts and maintaining appropriate custody arrangements. This could make the service more complex than managing a conventional mutual fund portfolio.

The ability to customise portfolios may be useful for investors with specific financial goals, but the eventual demand for the service will depend on how effectively managers can balance returns, risk and costs.

Tax implications remain a concern

Taxation is another factor investors will need to consider before opting for the PRIM route.

Kukreja noted that switching between investments under the framework could have capital gains tax implications for investors. This could affect post-tax returns, particularly if portfolio managers frequently change allocations or book profits.

The tax impact will need to be assessed alongside management fees and the performance of the underlying investments to determine whether the service offers sufficient value compared with investing directly in mutual funds.

The PRIM framework is scheduled to come into effect from April 1, 2027. While the lower minimum investment requirement could make professionally managed portfolios accessible to a wider group of affluent investors, its appeal will depend on the final product offerings and how investors respond.

For full interview, watch accompanying video

SEBI’s new prim framework: What investors need to know