Summary: SEBI has recently proposed an overhaul of the Portfolio Managers Regulations, opening doors that have stayed shut until now. Discretionary portfolio managers may soon be allowed to invest in pre-IPO securities and unlisted debt, while portfolio managers more broadly may be permitted to invest in overseas markets. A new, low-entry “MF-PMS” category is proposed for mutual-fund-only portfolios, alongside looser derivative limits for discretionary portfolio management and a fresh route for independent fund managers to operate under registered PMS players. But it’s not just about new investment avenues, Principal Officer qualifications, net worth requirements, and even the definition of “related party” are all set to change too. If implemented, these reforms could reshape how discretionary and non-discretionary portfolio management services operate in India, making the industry more innovative and investor-friendly.
The Securities and Exchange Board of India (“SEBI”) has, vide its Consultation Paper dated July 23, 2026, proposed a comprehensive overhaul of the SEBI (Portfolio Managers) Regulations, 2020 (“PM Regulations”). This marks the first comprehensive review of the Portfolio Managers Services (“PMS”) regulatory framework since 2020, when the erstwhile 1993 Regulations were substantially revamped.
The case for reforms is supported by the industry’s remarkable growth trajectory. As on May 31, 2026, AUM of the PMS industry stood at INR 42.61 lakh crore (up from INR 18.07 lakh crore in April 2019), total clients grew to 2.19 lakh (from 1.5 lakh in April 2019), and the number of registered portfolio managers more than doubled from 226 in 2020 to 515 in 2026. The stated objectives of the proposed reforms include enabling more investment avenues, easing compliance, consolidating and simplifying regulatory provisions, and removing redundant and transitory clauses.
Key Proposed Changes: A Comparative Analysis
The table below sets out the key changes proposed in the draft Portfolio Managers Regulations, 2026, against the current PM Regulations and existing Master Circular for Portfolio Managers, dated July 16, 2025 (“Master Circular”), framework.
| Subject | Current Position | Proposed Position |
| Investment in “To-Be-Listed” Securities | Discretionary Portfolio Managers (“DPMS”) are permitted to invest in the securities listed or traded on a recognised stock exchange, money market instruments, units of Mutual Funds and other securities as specified by Board. | DPMS are proposed to be expressly permitted to invest in “to-be-listed” securities.[1] |
| Unlisted Debt Securities | Investment in unlisted debt securities is prohibited for DPMS. | It is proposed that the portfolio manager offering DPMS may be permitted to invest up to 10% of the client’s AUM in investment grade unlisted debt securities. |
| Foreign Securities | Portfolio managers are not permitted to invest client funds in foreign securities.[2] | Portfolio managers are proposed to be permitted to invest client funds in the following overseas securities: listed equity shares; listed debt securities; andunits/ securities of overseas mutual funds or unit trusts registered with overseas regulators and investing in listed equities shares, listed debt securities, and REITs. In furtherance to this, if portfolio managers are permitted to invest in foreign securities for resident Indian clients, ‘Eligible Fund Managers’ are also proposed to be permitted to manage/ advise overseas clients in overseas securities. It is also proposed that execution platform (dealing room) must be in India. Further, portfolio managers shall not carry out investment management operations or execution of transactions relating to portfolio management services outside the territory of India, except for execution of trades for investment in overseas securities. |
| Mutual Fund-Only PMS (“MF-PMS”) – New Category | No dedicated MF-PMS framework exists. Portfolio managers may invest in MF units (direct plan only) alongside other permissible securities. | A new registration category “MF-PMS” is proposed for managers investing exclusively in direct plans of mutual fund schemes (including ETFs and SIFs). Key proposals: minimum investment of INR 25 lakh proposed;minimum net worth requirement of INR 2 crore proposed;simplified certification for Principal Officer; additional employee and dedicated dealing room requirements made optional; exit load provisions waived; may charge a fixed management fee capped at 2.5% of AUM;mutual funds distributors are required to maintain arm’s length relationship between its activities as an MFD and a MF-PMS through a separately identifiable department or division. The MF-PMS will be required to have client level segregation for its services as an MFD and MF-PMS. |
| Dealing Room Requirements | Portfolio managers must maintain a dedicated, segregated dealing room. All conversations of the dealing team must be on recorded telephone lines. Mobile phones and unrestricted internet access are prohibited inside the dealing room. | Dedicated dealing room requirement proposed to be relaxed for portfolio managers with fewer than 10 clients or AUM below INR 100 crore, subject to maintenance of adequate audit trail and internal controls. |
| Third Party Fund Management – Independent Fund Managers | No framework for independent fund managers to operate under the umbrella of a single registered portfolio manager. | Independent fund managers must bring their own clients and manage client funds while operating under the umbrella of a single SEBI registered portfolio manager – akin to the third-party fund management framework. It is proposed that: the registered portfolio manager would provide fund managers with infrastructure and other compliance requirements and will retain regulatory accountability for legal, fiduciary, managing all KYC/ AML checks;while the fund manager will generate investment signals/ orders, the final execution will go through the portfolio manager’s centralised dealing desk or authorised execution systems to ensure pre-trade compliance checks; and the relationship between the fund manager and the portfolio manager will be governed under an agreement, under which the portfolio manager will be entitled to share fees/ revenues with the fund manager as mutually agreed. |
| Exchange Traded Derivatives | Portfolio managers may invest in derivatives for hedging and portfolio rebalancing. No leverage or unhedged short positions permitted. Exposure limited to client’s portfolio funds. | It is proposed to permit the portfolio manager to invest a client’s funds in exchange traded derivatives in the following manner: total exposure up to 1.25x of client AUM; unhedged short exposure only through equity exchange traded derivatives, up to 50% of client’s AUM;total options premium paid and received proposed to be capped at 10% of client AUM. |
| Principal Officer – Educational Qualification | Principal Officer must hold a professional qualification in finance, law, accountancy, or business management from a recognised university, or a CFA charter, or complete a Post Graduate Programme in Securities Market (Portfolio Management) from NISM. | Proposed to rationalise minimum educational qualification to graduation degree in any discipline from a recognised university in India or foreign university or a professional qualification in finance. |
| Net Worth – Definition and Deployment | Net worth defined as paid-up equity capital plus free reserves, less accumulated losses and deferred expenditure. | Net worth proposed to be redefined to include securities premium reserve and to exclude loans and advances (including to related parties/ associates). At least 10% of net worth proposed to be deployed in liquid, unencumbered assets and shall include cash, bank deposits with Scheduled Commercial Banks, money market instruments, Government securities, treasury bills, Repo on Government securities. Existing portfolio managers proposed to be given 12 months to comply. |
| Disclosure Document – Format and Filing | Disclosure document with material change must be filed within seven working days. | Disclosure document proposed to be permitted to be shared in digital format. Filing timeline for material change proposed to be revised to 10 calendar days from seven working days. |
| Change in Principal Officer – Reporting Timeline | Change in identity of Principal Officer to be disclosed to SEBI and clients within seven working days of the change. | Timeline proposed to be revised to 10 calendar days from seven working days. |
| Operating Expenses Cap | Cap of 0.50% per annum on operating expenses relative to client’s average daily AUM. | The 0.50% p.a. cap is proposed to be calculated minus statutory levies. |
| Corporate Governance Report – Submission Timeline | Corporate Governance Report must be submitted to SEBI within 30 calendar days. | Timeline proposed to be extended to 60 calendar days to align with the timeline for firm-level reporting and compliance certificate submissions. |
| Definition of “Related Party” | Definition of related party includes a public company in which a director/ partner/ manager holds, along with relatives, more than 2% of paid-up share capital. Not fully aligned with the Companies Act, 2013, definition. | Definition proposed to be aligned with the Companies Act, 2013, to remove inconsistencies. |
| Definition of “Non-Discretionary Portfolio Manager” (“NDPMS”) | No explicit definition of NDPMS. | NDPMS proposed to be defined as “a portfolio manager who under a contract relating to portfolio management, manages the funds or portfolio of securities in accordance with the discretion of the client”. |
| Minimum Business Activity Threshold | No express requirement to establish minimum business activity within a specific period post-registration. | Registered portfolio managers must establish business activity within three years of registration, defined as having at least 10 clients or total AUM of INR 5 crore. Transitional provisions proposed to apply to existing portfolio managers. |
| Compliance Officer – Eligibility | No NISM certification specifically mandated for compliance officers of portfolio managers. | Compliance officers are required to obtain NISM Series-III-C: Securities Intermediaries Compliance (Fund) Certification Examination. |
| Demat Account Portability | Investors must open a new demat account when migrating between portfolio managers or when there is a custodian change. | Seamless portability of client accounts covering KYC data, custodial arrangements and demat assets with appropriate consent and safeguards is proposed. |
| Power of Attorney (“POA”) | Industry practice: Portfolio managers obtain POA from clients (in addition to the client agreement) to execute transactions on their behalf. | It is proposed to relax the POA requirement to reduce administrative barriers and facilitate hassle-free asset transfers. |
Conclusion
The Consultation Paper indicates a shift in SEBI’s approach to regulating the PMS industry, from a largely restrictive regime to one that actively facilitates product innovation and operational efficiency. The proposals allowing investments in to-be-listed and foreign securities, introducing the MF-PMS category with a reduced entry threshold, expanding derivative flexibility, and enabling independent fund managers to operate under registered portfolio managers reflect SEBI’s intent of aligning the PMS framework with global asset management standards while maintaining investor safeguards.
The governance and compliance reforms are also notable: the rationalisation of Principal Officer qualifications, alignment of the related party definition with the Companies Act, 2013, introduction of minimum business activity thresholds, and the shift to calendar-day timelines indicate a move towards a simpler regulatory framework.
Industry participants, compliance teams, and legal advisors should review the proposals and submit responses before the August 13, 2026, deadline. If adopted, the revised regulations will require changes to operational structures, client documentation, investment policies, and compliance frameworks across the PMS industry.
[1] As per the Draft SEBI (Portfolio Managers) Regulations, 202X (Annexure A to the Consultation Paper), “to be listed securities” means equity securities available for purchase or application or investment under public issue in an initial public offer, or debt securities under primary market issuance, till its listing on a recognized stock exchange.
[2] SEBI via the Informal Guidance Letter dated October 29, 2021, noted that the term ‘Securities’ has been defined under Section 2(h)(i) of the Securities Contracts (Regulation) Act, 1956 (“SCRA”) which, inter-alia, includes “shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or a pooled investment vehicle or other body corporate.” In terms of Section 1(2) of the SCRA, the Act is applicable to the territory of India, and therefore, the term ‘securities’ as defined under the SCRA may be construed to be applicable to securities issued, listed or proposed to be listed in India. Thus, the extant legal framework governing portfolio managers does not envisage investment in/ advice on offshore shares and securities which are neither listed or intend to get listed in the recognised stock exchange(s).
