How to Evaluate a PMS Before Investing: A Practical Checklist

Knowing how to evaluate a PMS (portfolio management service) before investing is less about the highest number on a return chart and more about who will run your money, how, at what cost and with what risk. Under the SEBI (Portfolio Managers) Regulations, 2020, a PMS needs at least ₹50 lakh and the securities sit in your own demat account, so every decision the manager takes shows up in your holdings and your tax return.

This PMS evaluation checklist walks through the documents and data SEBI already requires managers to publish. If you are new to the product, start with what a PMS is and how it works.

The PMS evaluation checklist at a glance

Step 1: confirm registration and read the disclosure document

Check the SEBI registration

SEBI's website lists every registered portfolio manager, and its investor charter for PMS asks you to check registration before signing up; the number must also appear in the account opening form and the disclosure document. Since SEBI's circular of 2 May 2024, PMS distributors must also be registered with the Association of Portfolio Managers in India (APMI), so check your distributor too.

Read the disclosure document, not just the presentation

Under Regulation 22 of the 2020 regulations, the disclosure document must be given to you before you sign, be certified by an independent chartered accountant and stay on the manager's website at all times. Since SEBI's circular of 9 September 2025, it follows a standard 16-part format in two sections:

• Static: services offered, risk factors, expenses, taxation, the diversification policy, and any penalties, litigation or regulatory findings.
• Dynamic: client numbers and assets, the manager's own finances, its performance, audit observations of the preceding three years, and investments in related parties.

Read the penalties and audit sections first, then the risk factors for your chosen investment approach; SEBI's template warns that an approach's name says nothing about its prospects.

Step 2: read the PMS track record the right way

Time-weighted returns against the APMI benchmark

SEBI's circular of 16 December 2022, in force from 1 April 2023, standardised how PMS performance is shown. Every investment approach is tagged to one of four strategies: equity, debt, hybrid or multi asset. APMI prescribes up to three benchmarks for each strategy and the manager picks one as the primary benchmark; since SEBI's letter of 3 October 2024, it may also show one optional secondary benchmark, from a prescribed list, that fits the approach more closely. Any performance figure must be the time-weighted rate of return (TWRR), shown alongside the benchmark's trailing return. TWRR strips out the effect of when money came in or went out, so it measures the manager, not the timing of clients' cheques.

Managers report these figures to SEBI and APMI every month for periods from 1 month to 5 years and since inception, and APMI publishes them so you can compare approaches within a strategy. Returns must be net of all fees and expenses and include cash holdings. APMI's equity benchmarks are total return indices, which count dividends.

Performance reporting may not use model portfolio returns or the returns of hand-picked clients. If a manager changes an approach's benchmark or strategy, clients must be offered an exit without exit load, and the track record before the change can no longer be used.

Since inception versus rolling returns

A since-inception figure depends heavily on the start date: one strong early year can carry a weak recent record. Read every period, and where rolling returns are shown (every three-year window, say), check how often the approach beat its benchmark, not just by how much.

Check the length of the record too: on data platforms, many approaches show a one-year comparison with their benchmark, but far fewer have a five-year record.

Drawdowns

A drawdown is the fall from a portfolio's peak to its lowest point before it recovers. Ask for the largest drawdown, how long recovery took, and how both compare with the benchmark over the same months. Concentrated mid or small cap approaches can fall much further than the market; ask whether you could stay invested through that.

Dispersion between client portfolios

Your return can differ from the approach's TWRR because of when you invested and any restrictions you set. So the 2022 circular requires your report to show your own XIRR (a return reflecting your actual cash flows) with the minimum, maximum and median XIRR across all investors in that approach. A wide gap means client outcomes have varied a lot.

Step 3: match PMS strategy types to your goal and horizon

Within SEBI's four strategies, investment approaches differ widely. Common styles include:

• Large cap: mostly the largest listed companies.
• Mid and small cap: smaller companies, with sharper price swings and thinner trading.
• Multi cap or flexi cap: across company sizes.
• Thematic or sector: concentrated in one theme or a few sectors.
• Multi asset: a mix of equity, debt, arbitrage and assets such as gold or REITs and InvITs.
• Debt: bonds and money market instruments.

SEBI requires every approach's description to state its objective, securities, selection basis, allocation, benchmark, indicative tenure and risks. If that tenure is longer than you can leave the money invested, the approach does not fit your goal, however its record looks.

Step 4: how many stocks a PMS holds and why concentration matters

SEBI's rules do not fix how many stocks an equity PMS must hold. Instead, the disclosure document sets out the manager's diversification policy, and its standard risk factors warn that portfolios concentrated in a few stocks, sectors or company sizes carry extra risk. Ask how many stocks the approach usually holds, the maximum weight in one stock and one sector, and the share of the ten largest holdings. Also check the disclosure on investments in the manager's associates or related parties: these need your consent and are subject to SEBI's prudential limits.

Step 5: how PMS portfolio churn affects your tax

Churn is how often the manager buys and sells. Each approach's portfolio turnover ratio (the higher of purchases or sales divided by average assets) is reported monthly, and APMI publishes a turnover report.

Turnover matters more in a PMS than in a mutual fund because the shares are yours: every sale is taxable in your hands, even if you withdraw nothing. For FY 2026-27, under the Income-tax Act, 2025, gains on listed equity held 12 months or less are taxed at 20%, and longer-held gains at 12.5% above ₹1.25 lakh a year, plus surcharge and 4% cess. On ₹5 lakh of gains, short-term tax is ₹1 lakh before surcharge and cess. Held for more than 12 months, the same gains are taxed at 12.5% on ₹3.75 lakh, or ₹46,875 before surcharge and cess, if the ₹1.25 lakh a year has not already been used against other long-term equity gains. Brokerage is also charged at actuals, so a high-churn approach must earn more just to stand still after costs and tax.

Step 6: how PMS fees are charged and how to read the fee illustration

PMS fees follow three models: fixed (a percentage of assets), performance (a share of gains above a hurdle, charged only above the high-water mark) and hybrid. SEBI bans upfront fees and caps operating expenses other than brokerage at 0.50% a year of average daily assets; 18% GST applies on fees.

The client agreement must carry a fee annexure showing all charges on a sample ₹50 lakh portfolio when its value rises 20%, falls 20% or stays flat. For clients onboarded from 1 October 2024, the manager must share a fee calculator in advance, and where a performance fee applies the annexure must add multi-year illustrations. You sign this annexure separately, with a note that you understand it, and nothing outside it can be charged. Compare the illustrated cost, not the headline percentage. Our guide to PMS fees, hurdles and the high-water mark works through the arithmetic.

Step 7: how to exit a PMS and what it costs

A PMS has no lock-in, but leaving early can cost money: SEBI caps exit loads at 3% of the amount redeemed in the first year, 2% in the second and 1% in the third, with none after three years; large-value accredited investors negotiate their own terms. Check how quickly withdrawals are settled, whether you can take securities instead of cash, and how long a concentrated small cap holding might take to sell. On closure, funds and securities must be transferred to your verified bank and demat accounts, and anything sold triggers capital gains tax. The steps are covered in how to open, run and exit a PMS account.

Step 8: what a PMS client report should show

Regulation 31 of the 2020 regulations requires a report at least every three months showing holdings and values, every trade, dividends and interest, expenses, risks, any debt defaults and the commission paid to the distributor for your account. In practice most managers send monthly statements. You also receive the annual audit certificate on the manager's portfolio accounts, and may appoint your own chartered accountant to audit your account. Ask for a sample report before you sign: it should show your XIRR, the approach's TWRR, the benchmark and the client XIRR range together.

Questions to ask a portfolio manager

• Who runs this approach day to day, for how long, and who takes over if they leave?
• Which benchmark do you use, and has it ever changed?
• What was the largest drawdown and recovery time, against the benchmark?
• In your fee illustration, what is my all-in cost if returns are flat or negative?
• How are withdrawals settled, and what exactly does the power of attorney let you do?

PMS red flags

• Promised returns. Regulation 22 of the 2020 regulations bars managers from promising any return, directly or indirectly, and the PMS distributors' code of conduct bars distributors too.
• Mixing up clients' money. A discretionary manager must manage each client's portfolio individually, may not use one client's funds for another and may not market "schemes" like a mutual fund.
• Cash or third-party payments. Money should move only from your own verified bank account, and client funds must sit in a separate account at a scheduled commercial bank.
• Pressure to decide. You must receive the disclosure document before signing and sign the fee annexure separately; anyone hurrying you past these steps is a warning sign.
• Model or hand-picked returns, or charges outside the annexure. SEBI bars all of these.

What changes from April 2027

SEBI notified the SEBI (Portfolio Managers) Regulations, 2026 in October 2026; they replace the 2020 regulations from 1 April 2027. The ₹50 lakh minimum, the three-month reporting ceiling and the bar on promising returns continue, and the disclosure document becomes digital.

How Sanriya supports your PMS comparison

Sanriya Finvest Pvt. Ltd., Pune, is an APMI-registered PMS distributor (APRN01056) and an AMFI-registered mutual fund distributor (ARN-193359). We gather the disclosure documents, fee illustrations and APMI data for the approaches you want to compare, explain them line by line, handle the onboarding paperwork and service the account. The portfolio manager pays us a trail commission out of its fee, which must be disclosed to you; we charge you no separate fee, and SEBI also lets you join a PMS directly. The choice of manager stays with you. See our PMS page or contact us to collect and walk through the documents for the approaches you are considering.