Discretionary vs Non-Discretionary PMS: How Much Control Do You Keep?

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Portfolio Management Services (PMS) hand your money to a professional manager, but exactly how much of the decision-making you hand over along with it depends entirely on the structure you choose. SEBI recognises three types of PMS: discretionary, non-discretionary, and advisory. The choice between the first two in particular carries real, day-to-day operational implications for how involved you will be in your own portfolio.

This article walks through what each structure actually means in practice, what you keep control of and what you give up, and how to work out which one fits the way you actually want to invest.

A Quick Primer on PMS

PMS is a SEBI-regulated investment product aimed at high-net-worth investors, with a minimum investment of ₹50 lakh mandated by SEBI. Unlike a mutual fund, where you hold units in a pooled scheme, PMS involves direct ownership of securities in your own name, managed under a strategy built around your specific mandate.

Every portfolio manager offering this service is a SEBI-registered entity, operating under the SEBI (Portfolio Managers) Regulations, 2020. This article focuses specifically on the discretionary versus non-discretionary distinction, since that is where the real day-to-day difference in control shows up. A third category, advisory PMS, exists under the same regulatory framework and is covered briefly for context further down.

What Is Discretionary PMS?

In a discretionary structure, the portfolio manager holds sole authority to make buy and sell decisions on your behalf, without seeking your approval for each individual transaction.

To make this legally possible, the client typically grants a limited Power of Attorney (PoA) to the portfolio manager at the time of onboarding. This PoA is the legal basis that allows the manager to act on the portfolio directly. Every decision the manager takes still has to sit within an agreed investment mandate, one that covers your risk profile, return objectives, permitted asset classes, and any client-specific exclusions you have asked for, such as avoiding a particular sector.

As the client, you do not approve individual trades as they happen. You receive transaction confirmations and periodic reports after the fact, showing what was done and why. Customisation happens once, at the mandate stage. Once that mandate is agreed, the manager operates within those guardrails without needing to come back to you before each move.

What the client controls in discretionary PMS

• The mandate parameters set at onboarding: risk appetite, permitted asset classes, and any exclusions
• The ability to exit the arrangement or renegotiate the mandate, with notice
• Oversight of performance and strategy through periodic reporting

What you do not control is the timing of individual trades or the specific security selection within the mandate. Those decisions sit entirely with the manager.

What Is Non-Discretionary PMS?

A non-discretionary structure flips the balance of control. The portfolio manager advises on investment decisions, but you must explicitly approve each trade before it is executed.

Here, a limited PoA is still commonly granted so the manager can execute the trades you have approved and operate your designated accounts. Your approval of each transaction is itself the authorization the manager needs to act. In practice, the manager recommends a trade, communicates it to you through a call, message, or app, and then waits for a go or no-go decision before doing anything. You retain veto power over every individual decision that touches your portfolio.

This structure asks a lot more of you as an investor. You need to be reachable and responsive within whatever window the manager specifies for a decision, which can mean genuine day-to-day involvement rather than periodic check-ins.

What the client controls in non-discretionary PMS

• Every individual buy and sell decision
• The ability to reject or defer any recommendation put in front of you

What you do not control is the quality of the recommendations themselves, that still depends on the manager’s research and judgement. It is also worth knowing that rejecting recommendations too frequently can erode the coherence of the underlying strategy, since the manager’s approach is often built around a sequence of moves working together.

What About Advisory PMS?

A third structure exists under SEBI’s framework, and it is worth knowing even though this article does not go deep into it. In advisory PMS, the portfolio manager offers investment advice, but the client handles execution entirely on their own. The manager never touches the portfolio directly. Its role ends at the recommendation stage, which makes it a distinct category from both discretionary and non-discretionary PMS rather than a midpoint between them.

Key Differences Between Discretionary and Non-Discretionary PMS

On fees specifically, both structures can carry flat or AUM-based management fees along with performance fees. Whether a provider charges more or less does not come down to discretionary versus non-discretionary; it varies by provider. Compare the total cost across providers regardless of which structure you are leaning toward, while also ensuring the PMS provider complies with applicable SEBI regulations and, where relevant, FEMA governs how NRI funds are brought in and repatriated rather than something the provider

Common Misconceptions

“Discretionary means I lose control of my money.” Not quite. The manager operates strictly within the mandate you agreed to at the outset. You set the boundaries at the start, and you retain the ability to exit or renegotiate the arrangement later.

“Non-discretionary is safer because I approve everything.” Approving every trade sounds safer, but slower approval cycles can also mean the manager is unable to act quickly during periods of market stress. Missing a defensive trade because you were unreachable at the wrong moment is a real risk of this structure, not a hypothetical one.

“Non-discretionary is better for beginners.” In practice it demands more from the investor, not less. Every recommendation needs a timely, informed evaluation. Without the underlying knowledge to assess what is being proposed, approvals tend to become rubber stamps rather than genuine decisions.

“Discretionary managers can invest in anything.” They cannot. They remain bound by SEBI’s regulations, the specifics laid out in their Disclosure Document, and the mandate they have agreed with you.

How to Decide Which Type Suits You

Choose discretionary if:

• You have limited time to monitor and respond to trade recommendations
• You are comfortable delegating within a clearly defined mandate
• You want the manager to move quickly on opportunities without waiting for your sign-off
• You are not looking to actively co-manage your own portfolio

Choose non-discretionary if:

• You hold strong investment views you want to retain influence over
• You are transitioning from managing your own investments and want to stay close to decisions
• You have the bandwidth to respond promptly and consistently to recommendations
• You want visibility into the reasoning behind a trade before it happens, not after

A useful self-test before deciding: can you realistically respond to trade recommendations within the window your manager requires? And do you have enough investment knowledge to evaluate each one meaningfully, or would you end up approving without really understanding what you are approving?

Questions to Ask a PMS Provider Before You Decide

• What exactly is included in the investment mandate, and what parts of it are negotiable?
• (Discretionary-specific) What is the process if I want to flag a concern about a trade after it has already been executed?
• (Non-discretionary-specific) What is the typical approval window, and what happens to a trade recommendation if I do not respond in time?
• How are recommendations communicated, by phone, app, or email, and what turnaround time is expected of me?
• What reporting will I receive, and how frequently?
• What happens to my portfolio during a market emergency if I am unreachable, particularly under a non-discretionary arrangement?
• Is your PMS registered with SEBI under the Portfolio Managers Regulations, 2020?

Frequently Asked Questions

Is discretionary PMS riskier than non-discretionary PMS?

Not inherently. Risk in PMS comes mainly from the underlying strategy and asset allocation, not from who clicks the buy or sell button. Discretionary structures do concentrate more decision-making trust in the manager, which is a different kind of risk worth weighing.

Do I need to sign a Power of Attorney for non-discretionary PMS?

No PoA is needed to authorise the decisions, since your approval does that, but a limited PoA is often taken for execution and account operation

Can I switch from non-discretionary to discretionary PMS later?

Generally yes, subject to the terms of your agreement with the provider and any onboarding steps required for the new structure, including executing a fresh Power of Attorney if you are moving to discretionary.

Is the ₹50 lakh minimum investment the same for both types?

Yes. SEBI’s ₹50 lakh minimum investment requirement applies across discretionary, non-discretionary, and advisory PMS alike.

Does FEMA apply to PMS investments?

For resident Indian investors, standard PMS rules apply. Where non-resident Indians or other foreign investors are involved, the Foreign Exchange Management Act (FEMA) governs how funds can be brought in and repatriated, alongside the SEBI framework that governs the PMS itself.

Which type is more popular in India?

APMI data shows that the Discretionary mandate stands at roughly 85% of industry AUM. Discretionary PMS is the more commonly chosen structure, largely because it demands less day-to-day involvement from the investor and allows managers to act on opportunities without waiting for individual approvals.

Conclusion

Discretionary PMS means you delegate decisions within a mandate you set at the start. Non-discretionary PMS means you retain approval authority over every individual trade. Neither is objectively better than the other; the right choice depends on how involved you genuinely want to be and how much time you can realistically commit to reviewing recommendations.

Before deciding, take an honest look at your own availability and investment literacy. And whichever structure you lean toward, verify the SEBI registration of any Portfolio Management Services provider you are considering through SEBI’s BASL registry before signing anything.