SEBI Reforms PMS: Global Investing & Derivatives

The Securities and Exchange Board of India (SEBI) has proposed significant reforms for Portfolio Management Services (PMS), aiming to enhance investment flexibility for clients. A consultation paper released on July 24, 2026, details these changes, which include allowing global investments and revising derivative strategy rules.

These proposals seek to modernize how portfolio managers handle client funds, providing greater access to diverse investment opportunities. The move also aligns PMS regulations with frameworks already in place for other investment vehicles in India.

Expanding Global Investment Avenues

One key proposal enables PMS providers to invest client funds directly into international markets. This broadens options for high-net-worth investors seeking global diversification.

• Investments can include listed foreign equity shares.
• Foreign debt securities are also proposed for inclusion.
• Overseas mutual funds or unit trusts would become accessible.

All such international investments would necessitate adherence to Foreign Exchange Management Act (FEMA) guidelines and require explicit client consent.

Revising Derivative Strategy Rules

SEBI also plans to ease existing restrictions on the use of exchange-traded derivatives, acknowledging a demand for more sophisticated wealth management strategies. This aims to empower managers with more tools for portfolio construction.

• Managers could take unhedged short positions in equity derivatives up to 50% of a client’s total Assets Under Management (AUM).
• Total derivative exposure would be capped at 1.25 times the client’s AUM.

Additional Regulatory Adjustments

Beyond global investments and derivatives, the consultation paper outlines several other adjustments designed to simplify and consolidate the regulatory environment for PMS providers.

• PMS would be permitted to invest in securities undergoing listing.
• Discretionary portfolio managers could allocate up to 10% of a client’s AUM into investment-grade unlisted debt securities.
• A simplified framework for Mutual Fund-only Portfolio Management Services (MF-PMS) is being explored to lower entry barriers for smaller investors.

These comprehensive proposals are currently open for public feedback, reflecting SEBI’s ongoing effort to adapt regulations to market demands and investor needs. The changes aim to provide high-net-worth individuals with a broader suite of investment tools comparable to other sophisticated financial products.