Sebi plans massive overhaul of portfolio manager rules. Here are the proposed changes

The Securities and Exchange Board of India has released a consultation paper proposing a major overhaul of the regulatory framework around portfolio managers.

The proposals include enabling more investment avenues for the development of the PMS (portfolio management services) industry, enabling investments in unlisted debt securities under discretionary PMS (DPMS) and enabling investment in foreign securities under DPMS and non-discretionary PMS (NDPMS). The market regulator has also proposed allowing a mutual fund only PMS (MF-PMS).

The Assets Under Management of the PMS industry has grown massively to Rs 42.61 lakh crore as on May 31, 2026 from Rs 18.07 lakh crores in April 2019.

Currently, Portfolio Management (PM) regulations permit the investment of client funds in specific instruments, including securities that are listed and traded on recognized stock exchanges. Sebi has proposed to expand the universe to permit investments in “to be listed” securities.

“This would enable investors to gain exposure to broader market opportunities,” it feels.

The regulator also proposed that a PM offering DPMS may be permitted to invest up to 10 per cent of its client’s assets under management (AUM) in investment grade, unlisted debt securities.

Sebi has also proposed to allow PMs to invest client funds in overseas securities, which may include listed equity shares, listed debt securities, overseas mutual funds, and real estate investment trusts (REITs) listed on recognised stock exchanges.

“This would enable investors to get access to foreign securities through a regulated   investment professional landscape catering to sophisticated investors, HNIs, etc.,” it said.

The portfolio manager will have to obtain explicit positive consent of the client for investing in foreign securities and PMs will have to ensure the investment in foreign securities don’t breach applicable limits under FEMA (Foreign Exchange Management Act).

PMs can currently invest client’s funds in units of mutual funds along with other permissible securities. Sebi said there had been representations and requests from industry stakeholders that there was a demand for a simplified mutual fund-only PMS framework with lowered entry barriers.

“This proposed framework aims to effectively serve mass-affluent investors who seek professional portfolio management services for their mutual fund investments,” the regulator said.

Applicants intending to operate strictly within the permissible securities of the MF-PMS framework may obtain a separate registration as a MF-PMS.  

For MF-PMS, Sebi has proposed to reduce minimum client investment to Rs 25 lakh from Rs 50 lakh and the minimum net worth required for applicants is proposed to be reduced to Rs 2 crore from Rs 5 crore. Sebi has also proposed simplified certification for principal officer.

PMs operating under the MF-PMS framework shall be permitted to charge a fixed management fee, capped at a maximum of 2.5 per cent of the client's AUM. Other than fixed management fees, a PM would also be able to charge performance-based fee.

Sebi has also proposed to allow PMs to invest client’s fund in exchange traded derivatives.