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Archive / Investment Adviser (Level 1) / Overview of Alternative Investment Funds (AIFs)
nism-series-xa-discretionary-vs-non-discretionary-pms[ INVESTMENT ADVISER (LEVEL 1) ]

What is the legal difference between 'Discretionary PMS' and 'Non-Discretionary PMS' under SEBI (Portfolio Managers) Regulations?

[ A ]Discretionary PMS has a minimum ticket of ₹100, while Non-Discretionary has a ticket of ₹50 Crore.
[ B ]Discretionary PMS operates only in foreign currencies.
[ C ]In Discretionary PMS, the portfolio manager independently makes and executes investment decisions without prior client approval; in Non-Discretionary PMS, the manager advises but can execute trades ONLY after receiving explicit client confirmation.[ CORRECT ]
[ D ]Non-Discretionary PMS guarantees a 25% annual return.
Takeaway

In Discretionary PMS the portfolio manager independently makes and executes investment decisions without prior client approval, while in Non-Discretionary PMS the manager can only advise and must obtain explicit client confirmation before executing any trade.

Derivation
This distinction is about who holds trading authority: a Discretionary PMS client hands over full investment decision-making power to the manager within the agreed mandate, so trades are executed on the manager's judgment alone. A Non-Discretionary PMS client retains that authority — the manager can research, recommend, and structure a trade idea, but the actual execution requires the client's explicit sign-off each time. This is a core SEBI (Portfolio Managers) Regulations distinction tested repeatedly because it determines legal liability for investment outcomes and the manager's disclosure obligations, and candidates often confuse it with the unrelated advisory-versus-execution distinction used for RIAs.
Why the others fail
A — Discretionary PMS has a minimum ticket of ₹100, while Non-Discretionary has a ticket of ₹50 Crore.
Both discretionary and non-discretionary PMS models are subject to the same statutory minimum investment ticket size of ₹50 lakh under SEBI Portfolio Managers Regulations.
B — Discretionary PMS operates only in foreign currencies.
Both PMS models operate and are denominated in Indian Rupees under SEBI's domestic Portfolio Managers Regulations; neither is restricted to foreign-currency-only operations.
D — Non-Discretionary PMS guarantees a 25% annual return.
No PMS structure, discretionary or non-discretionary, is permitted to guarantee a fixed rate of return such as 25% p.a. — market-linked portfolio returns cannot be assured under SEBI norms.