Leaving a PMS — Withdrawal, Exit Load and Your Rights
A PMS client may withdraw money or close the account as the client agreement provides. This lesson covers SEBI's caps on exit load, the situations in which a client must be allowed to leave without exit load, and the market and tax consequences of selling on the way out.
Leaving is governed by the agreement
A client may withdraw money or close the account in the way the client agreement provides. The agreement is also where any exit load is set out.
An exit load is a charge on the amount withdrawn. Whether there is one at all, and at what rate, depends on the agreement. SEBI's role is to cap it.
SEBI's cap on exit load
Where the agreement carries an exit load, it cannot exceed 3% of the amount withdrawn in the first year of the investment, 2% in the second year and 1% in the third year. After the third year no exit load may be charged.
These are ceilings, not standard rates: the load actually charged is what the client agreement provides, within them. The caps do not apply to large-value accredited investors.
When a client can leave without exit load
The Master Circular gives clients two specific ways out free of exit load, whatever the agreement says about loads. First, when control of the portfolio manager changes, clients must be given at least 30 calendar days to exit without exit load. A client who chose the manager under one controlling party is not held to the exit load when control passes to another.
Second, a change in the Strategy or benchmark tagging of an investment approach is allowed only after clients have been offered an exit without exit load. No period is fixed for this second case.
What else leaving costs
The exit load is not the only consequence. Securities sold on the way out are sold at market prices, which may be lower than their cost, so a client leaving in a weak market may realise losses.
Any gains realised on those sales are taxed in the client's hands, because the client owns the securities. A load-free exit removes the exit load. It does not remove market risk or tax.
Rules at a glance
A change of control in the first year
Asha opened a PMS account eight months ago. In this example her client agreement provides for an exit load of 3% on amounts withdrawn in the first year, which is within SEBI's cap. Her portfolio manager is now to come under new control.
Asha must be given at least 30 calendar days to exit without exit load. If she leaves within the window offered to her, the 3% load is not charged, though shares sold on the way out are still sold at market prices and any gains on them are taxed in her hands.
A third-year withdrawal: load and tax
- Assumptions of this example: the client agreement provides for an exit load of 1% on amounts withdrawn in the third year of the investment. The client withdraws ₹40,00,000 in that year. To raise it, the manager sells listed shares (STT paid), all held for more than 12 months, at a gain of ₹3,25,000. The client has no other capital gains in that tax year. Tax rates as of October 2026; surcharge and cess are ignored.
- Exit load: ₹40,00,000 × 1% = ₹40,000.
- Amount paid out: ₹40,00,000 − ₹40,000 = ₹39,60,000.
- Long-term gain above the yearly limit: ₹3,25,000 − ₹1,25,000 = ₹2,00,000.
- Tax on the gain: ₹2,00,000 × 12.5% = ₹25,000.
Result. The client is paid ₹39,60,000 after the exit load. Separately, tax of ₹25,000 (before surcharge and cess) falls on the client for the gains realised. The 1% is a term of this example; it is within SEBI's cap for the third year.
Key points
- Exit load, where the agreement has one, is capped by SEBI at 3% in the first year of the investment, 2% in the second and 1% in the third; none may be charged afterwards.
- A change of control of the manager gives clients at least 30 calendar days to exit without exit load.
- Before a change of Strategy or benchmark tagging, clients must be offered a load-free exit; no period is fixed.
- Securities sold on exit are sold at market prices, and gains realised are taxed in the client's hands.
Common misunderstandings
- The 3%, 2% and 1% figures are not standard exit loads: they are SEBI's ceilings, and the load charged is what the client agreement provides within them.
- An exit load cannot be charged for ever: no exit load may be charged after the third year of the investment.
- A load-free exit is not a cost-free exit: securities are still sold at market prices, and gains realised are still taxed in the client's hands.
Questions people ask
What is the highest exit load allowed in the second year?
2% of the amount withdrawn.
What happens for clients if control of the portfolio manager changes?
They must be given at least 30 calendar days to exit without paying exit load.
Is tax avoided when the exit is load-free?
No. Gains realised on selling securities are taxed in the client's hands whether or not an exit load applies.
What this lesson relies on
- SEBI Master Circular for Portfolio Managers, 16 July 2025
- SEBI (Portfolio Managers) Regulations, 2020 (as amended to 3 September 2025)
- Income-tax Act, 2025 — section 198 (section 112A of the Income-tax Act, 1961)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.