The segregation rule: PRIM and mutual fund distribution

SEBI's board decision on PRIM requires segregation of activities and clients between PRIM and mutual fund distribution. The exception is accredited investors.

Why the rule exists

A distributor earns commission when a client buys a regular plan. A PRIM manager is paid a fee to manage direct plans. If one firm does both for the same client, it could steer the client towards whichever earns more. Segregation is meant to remove that conflict.

What it means in practice

• A client served under PRIM should not also be served by the same firm as a distribution client, unless the client is an accredited investor.
• Firms that do both will need clear records of which clients sit in which business, and controls to keep them apart.
• Some firms may choose separate entities for PRIM and distribution. Take legal advice; the exact operating requirements are expected in SEBI's circular.

The accredited investor exception

Accredited investors are presumed able to judge such conflicts themselves, so the segregation requirement does not apply to them. Under the 2026 changes, portfolio managers can now accredit investors directly, and a new ₹5 crore securities-market test has been added. See accredited investors in 2026.