Direct onboarding in PMS
Every PM must let clients join without a distributor, charging only statutory charges at onboarding.
Every portfolio manager must offer clients the option to be onboarded directly, without a distributor in between. SEBI introduced this in its February 13, 2020 circular, and it now sits in paragraph 2.3 of the July 2025 Master Circular for Portfolio Managers.
For a distributor this is not a threat to hide. The option has to be disclosed prominently, the client may ask you about it, and misdescribing it is a conduct issue. Knowing exactly what the rule says, and what it does not say, keeps your pitch clean.
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What the rule requires
- check_circleOption to onboard directly: the PM must let clients come in without intermediation of persons engaged in distribution services (2.3.1).
- check_circleProminent disclosure: the direct option must be disclosed in the Disclosure Document, in marketing material and on the PM's website (2.3.2).
- check_circleNo charges at onboarding except statutory charges: a client onboarded directly pays only statutory charges, such as stamp duty, at the time of onboarding (2.3.3).
- check_circleCarve-out: none of this applies to co-investment portfolio management services (2.3.4).
Direct versus through a distributor
A client with ₹75 lakh comparing the two routes into the same investment approach:
Minimum investment
Direct
₹50 lakh
Through a distributor
₹50 lakh
Upfront fee
Direct
Not allowed
Through a distributor
Not allowed
Charges at onboarding
Direct
Statutory charges only
Through a distributor
As per the agreement's fee annexure; never an upfront fee
Distributor commission
Direct
None
Through a distributor
Trail only, paid by the PM out of its own fees, disclosed to the client before onboarding
Quarterly report
Direct
Shows 'Direct Plan' as distributor
Through a distributor
Shows the distributor and the commission paid for that client
| Direct | Through a distributor | |
|---|---|---|
| Minimum investment | ₹50 lakh | ₹50 lakh |
| Upfront fee | Not allowed | Not allowed |
| Charges at onboarding | Statutory charges only | As per the agreement's fee annexure; never an upfront fee |
| Distributor commission | None | Trail only, paid by the PM out of its own fees, disclosed to the client before onboarding |
| Quarterly report | Shows 'Direct Plan' as distributor | Shows the distributor and the commission paid for that client |
What direct onboarding does not mean
It does not make PMS free. Management fees, any performance fee, brokerage and operating expenses still apply under the agreement. SEBI's rule is about charges at the time of onboarding.
It also does not create a separate 'direct plan' with a SEBI-mandated lower fee, the way mutual funds have direct and regular plans with different expense ratios. Because a PMS distributor's commission is paid from the PM's own fee rather than added to the client's costs, any fee difference between the two routes is the PM's commercial choice, stated in its documents. Older material that describes PMS direct onboarding as a copy of the mutual fund direct plan overstates the rule.
Free account, this exam preselected.
Your duty when the client asks
If a client asks whether they can invest without you, the honest answer is yes. The PM must tell prospective clients what commission you will earn for onboarding them into a specific investment approach, and the quarterly report shows the commission paid for that client. Your case for being involved is advice and service, not access.
How XXI-A tests this
Questions are usually one-liners on the three rules: where the option must be disclosed (Disclosure Document, marketing material, website), what can be charged at onboarding (statutory charges only), and which service is exempt (co-investment). The distractor to watch is 'no charges of any kind', which drops the word 'statutory'. Another is 'direct clients have a lower minimum investment'; the ₹50 lakh floor is the same.
FAQs
What is direct onboarding in PMS?expand_more
It is the option every portfolio manager must offer to open a client's account without a distributor. At onboarding the client pays only statutory charges.
Is a direct PMS cheaper than a regular one?expand_more
Not by SEBI rule. The ongoing fees are whatever the PM's agreement states. The distributor's commission comes out of the PM's own fee, so any difference between routes is the PM's decision.
Where must a PMS disclose the direct option?expand_more
Prominently in its Disclosure Document, its marketing material and its website.
Does direct onboarding apply to co-investment PMS?expand_more
No. The Master Circular excludes co-investment portfolio management services from the direct onboarding provisions.