Explore concentration risk in Portfolio Management Services and curated portfolios as SEBI prepares for a 2026 overhaul. Learn essential strategies for investors.
The Rise of Portfolio management Services in India
Portfolio Management Services (PMS) in India have evolved from niche offerings to key players in the capital markets. According to the Association of Portfolio Managers in India (APMI), PMS assets grew from ₹37.06 lakh crore in December 2024 to ₹41.59 lakh crore by the end of 2025, a rise of over 12 percent in one year. The number of client accounts also surpassed 2.14 lakh, indicating that high-net-worth individuals, family offices, and sophisticated retail investors are increasingly opting for customized portfolio solutions. This growth is reshaping the dynamics of Indian equities, debt, and alternative assets, making the sector’s health closely tied to its risk-management practices.
understanding Concentration Risk: More Than Just Numbers
Concentration risk can seem straightforward—either a smart focus on a few strong ideas or a reckless gamble that increases losses. However, as highlighted in an Economic Times article, the reality is more complex. A PMS might allocate 30 percent to one sector, while a curated portfolio from a fintech may also heavily invest in that same sector. This creates “layered concentration,” where the same risk is counted multiple times, inflating the investor’s actual exposure.
Two key implications arise from this:
Return amplification versus volatility escalation. Concentrated investments can yield high returns when successful, but losses can be equally severe when market conditions change.
Illusion of diversification. Common portfolio metrics may suggest diversity, but high correlations among holdings can expose the portfolio to significant risks from a single market event.
Investors should look beyond basic metrics and analyze the economic exposure matrix of their investments. This involves understanding each asset’s role in sector, style, and thematic bets across all layers of the portfolio.
Concentrated investments can yield high returns when successful, but losses can be equally severe when market conditions change.
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Curated portfolios, which are pre-packaged by asset managers or fintech platforms, have gained popularity as easy access points for sophisticated investors. However, these products often carry the concentration risks of their underlying PMS strategies. For instance, a curated portfolio based on a high-growth mid-cap PMS may unintentionally invest in the same stocks, masking the actual risk exposure and leaving investors vulnerable to sector downturns.
Regulators have noticed this issue. SEBI’s upcoming 2026 overhaul aims to tighten disclosure rules regarding “layered exposure,” requiring managers to present a clear view of all positions tied to a single economic factor. This will help expose the hidden concentration risks that have previously gone unchecked.
Preparing for SEBI’s 2026 Overhaul: What Investors Need to Know
SEBI’s 2026 rule changes will focus on governance, transparency, and investor protection. Key updates will include mandatory reporting of concentration limits, stricter single-stock exposure limits, and disclosures on the economic impact of overlapping holdings. Investors should take note of the following:
Demand detailed exposure reports. Seek statements that break down holdings by sector, theme, and asset class, not just by name.
Check concentration limits. SEBI is likely to set a cap—around 15-20 percent—for any single security’s total exposure across all layers of a product.
Discuss risk-adjusted performance with advisors. Evaluate performance based on risk-adjusted returns, recognizing that higher returns may come from tighter concentration.
Advisors and asset managers must adapt their product designs. The new regulations will encourage them to create “risk-balanced” portfolios where concentration is a deliberate choice, not an unintended consequence.
Strategic Perspective for Financial Advisors
For financial advisors, the regulatory changes present both challenges and opportunities. Those who can explain the complexities of layered concentration in simple terms will stand out in a crowded market. This involves developing tools to visualize overlapping exposures, conducting scenario analyses to stress-test portfolios, and aligning fees with risk management outcomes rather than just performance.
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Additionally, the rise of data-analytics platforms provides a practical way to ensure compliance. By integrating portfolio management systems with real-time exposure dashboards, advisors can identify potential breaches of SEBI limits before they occur, protecting clients and maintaining the firm’s reputation.
This involves developing tools to visualize overlapping exposures, conducting scenario analyses to stress-test portfolios, and aligning fees with risk management outcomes rather than just performance.
Critical Insights on the Future of PMS and Curated Portfolios
The growth of India’s PMS industry indicates that concentration risk will remain a key topic for regulators and investors. As assets surpass ₹40 lakh crore, the sector’s importance increases, prompting proactive regulatory measures. Investors who understand that “diversification depends on economic exposure, not just the number of holdings” will be better equipped for the post-2026 landscape.
This understanding requires a disciplined approach: regularly assess the weight of each economic factor, question the logic behind concentrated bets, and align portfolio construction with a clear risk-budget framework. The push for better governance will create opportunities for managers who can deliver concentrated returns while ensuring clarity and control.
The Long-Term View
As SEBI’s overhaul unfolds, the Indian capital market faces a pivotal moment where scale, sophistication, and safeguards must align. The hidden risks of concentration are now critical, driving a new era of disciplined portfolio management. Firms that embrace this reality—by clarifying layered exposures, implementing strong governance, and communicating risks clearly—will set the standard for a mature, investor-focused PMS ecosystem. In this future, concentration will be a strategic tool rather than a hidden threat.
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