SEBI Overhauls Portfolio Manager Rules for New Investment Avenues

The Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of the Portfolio Managers Regulations, 2020. This review, outlined in a Consultation Paper dated July 23, 2026, aims to unlock new investment avenues, simplify regulatory provisions, and ease compliance.

This regulatory push follows significant growth within the Portfolio Management Services (PMS) industry.

• The PMS industry’s Assets Under Management (AUM) surged from INR 18.07 lakh crore in April 2019 to INR 42.61 lakh crore by May 31, 2026.
• The number of registered portfolio managers more than doubled, increasing from 226 in 2020 to 515 in 2026.

New Investment Avenues Unlocked

The proposals significantly broaden where Discretionary Portfolio Managers (DPMS) can invest client funds.

• DPMS may now invest in “to-be-listed” securities.
• They can allocate up to 10% of a client’s AUM into investment-grade unlisted debt securities.
• Portfolio managers will also gain permission to invest client funds in overseas listed equity shares, listed debt securities, and units or securities of overseas mutual funds.

Introducing the MF-PMS Category

A specialized category is being introduced for managers focused exclusively on mutual funds.

• A new “MF-PMS” category is proposed for managers exclusively investing in direct plans of mutual fund schemes.
• This category features a lower minimum investment requirement of INR 25 lakh.
• The net worth requirement for MF-PMS managers will be reduced to INR 2 crore.

Operational Streamlining for Portfolio Managers

Several changes aim to reduce the compliance burden and introduce new operational models.

• The requirement for a dedicated dealing room will be relaxed for portfolio managers with fewer than 10 clients or an AUM below INR 100 crore.
• A new framework will allow independent fund managers to operate under a single SEBI-registered portfolio manager.
• Under this model, the registered PMS provides infrastructure and compliance, while the fund manager generates investment signals.

Derivatives and Qualifications

The proposals also address the use of derivatives and the qualifications for key personnel.

• DPMS will be permitted to invest up to 1.25x of client AUM in exchange-traded derivatives.
• Unhedged short exposure in derivatives will be capped at 50% of client AUM.
• The minimum educational qualification for a Principal Officer will be rationalized to a graduation degree in any discipline.

Net Worth Definition and Other Reforms

Further reforms touch upon financial definitions and administrative processes.

• The definition of net worth will be revised to include securities premium reserve and exclude loans, with 10% required to be deployed in liquid, unencumbered assets.
• Additional reforms include allowing disclosure documents in digital format and aligning the “Related Party” definition with the Companies Act, 2013.
• Revised timelines for reporting material changes, a cap on operating expenses, and extended deadlines for Corporate Governance Report submission are also part of the proposals.

These reforms signify a move towards a more flexible and efficient regulatory environment. They are designed to encourage product innovation and bring the Indian PMS framework closer to global standards.