Consultation Paper On Comprehensive Review Of SEBI (Portfolio Managers) Regulations, 2020

Amid investors' rising sophistication and demand for bespoke, diversified portfolios, SEBI issued a Consultation Paper on 23 July 2026 proposing a major overhaul of the SEBI (Portfolio Managers) Regulations, 2020. The proposals aim to widen investment opportunities, rationalise compliance, consolidate provisions, simplify language and remove redundancies. Public Comments may be submitted to SEBI until 13 August 2026.

KEY ISSUES FOR PUBLIC CONSULTATION

1. Expansion of Investment Universe

• Investment in "To Be Listed" Securities - SEBI proposes expressly allowing portfolio managers to invest in "to be listed" securities, letting PMS clients tap opportunities before listing.
• Investment in Unlisted Debt Securities – SEBI currently lets nondiscretionary portfolio management services (‘NDPMS’) and advisory managers to invest up to 25% of a client's AUM in unlisted securities. SEBI proposes letting discretionary portfolio management services (‘DPMS’) managers invest up to 10% of AUM in investment grade unlisted debt securities.
• Investment in Foreign Securities - Currently barred, portfolio managers would be now allowed to invest in specified foreign securities such as overseas listed shares, bonds, mutual funds, REITs and unit trusts and the same subject is to FEMA regulations.

2. Introduction of Mutual Fund-only PMS (‘MF-PMS’)

SEBI has proposed a dedicated MF-PMS framework, letting portfolio managers manage client money solely through direct plans of mutual fund schemes, including ETFs and SIFs. Applicants working only within permitted securities may seek separate MF-PMS registration. Key guidelines for the same are as under:

• Minimum client investment cut from INR 50 lakh to INR 25 lakh.
• Minimum applicant net worth cut from INR 5 crore to INR 2 crore.
• Simplified certification becomes the standard requirement.
• The requirement to maintain a dealing room is made optional.
• Relaxed qualification and experience norms for the Principal Officer.
• The requirement of appointment of an additional employee and maintaining a dedicated dealing room would be optional.
• Disclosure document simplified for easier use.
• PMS exit-load provisions won't apply to MF-PMS, avoiding double-charging.
• Fixed management fee capped at 2.5% of client AUM. With the client's consent, a performance fee or a mix of both may also be charged.
• An MFD registered under MF-PMS must keep its MFD and MF-PMS activities at arm's length via a separate department, with clientlevel segregation. The same entity cannot offer a client both services.
• Existing portfolio managers may offer MF-PMS via a separate investment approach.

3. Permitting greater flexibility for investment in Exchange Traded Derivatives

PM Regulations already let portfolio managers use derivatives on recognized exchanges for hedging and rebalancing. Given growing demand for diversified, personalised solutions, SEBI proposes allowing exchange-traded derivatives as specified:

• Permitted to undertake a total exposure of not exceeding 1.25 times of the client’s AUM.
• Undertake unhedged short exposure, upto 50% of AUM, only via equity exchange-traded derivatives, over and above hedging and rebalancing within the limit of 1.25 times.
• The total exposure related to options premium paid and received capped at 10% of AUM.
• Explicit consent required from existing and new clients.

4. Geographical operational boundaries for portfolio managers.

• To enhance regulatory oversight and supervisory control, it is proposed that portfolio managers be prohibited from undertaking investment management activities or executing portfolio management transactions outside India, except for the execution of trades relating to investments in overseas securities.

5. Relaxation of dedicated dealing room mandate

• Currently, Portfolio Managers are subjected to a dedicated dealing room mandate. However, Portfolio Managers managing AUM of less than INR 100 crores have limited client base, lower trading volumes and simpler operating structure.
• SEBI proposes to provide relaxation to Portfolio Managers having less than 10 clients or AUM of less than 100 crores from the dealing room mandate. However, they would still be required to maintain appropriate audit trail of communication of order placement with adequate internal controls.

6. Importing the proposed foreign security investment relaxation for Portfolio Managers to Eligible Fund Managers.

• Eligible fund managers are portfolio managers managing overseas funds of overseas investors from India subject to the conditions specified in the SEBI Regulations read with provisions of the Income Tax Act. Since it is proposed to allow portfolio managers to invest in specified foreign securities, it has been proposed to allow Eligible Fund Managers also to manage and advice overseas clients in overseas securities.

7. Independent fund managers under a SEBI-Registered Portfolio Manager.

• It has been proposed to permit Independent Fund Managers (‘IFM’) to operate under a single SEBI registered Portfolio Manager (‘PM’) through an agreement. IFMs shall bring their own client and client funds and execute orders through PM’s systems. PM would be responsible for regulatory compliances and provide infrastructure to IFMs. PM would be entitled to share fees/ revenue with IFMs as per agreement.

8. Demat Account portability for existing clients

• Currently, a change in portfolio manager or change in custodian within the same portfolio manager requires opening of a new demat account. It is proposed to enable seamless portability of demat account already containing KYC details from one Portfolio Manager to another or from one custodian to another within the same Portfolio Manager to avoid unnecessary repeated compliance.

9. Operational relaxation from Power of Attorney (‘POA’) requirement.

• For DPMS, it is proposed to relax POA requirement to reduce administrative barrier

AURTUS COMMENTS

Overall, the proposed reforms represent the most significant review of the PMS regulatory framework since 2020. The changes are aimed at enhancing the competitiveness of PMS vis-à-vis mutual funds, AIFs and IFSC platforms, while easing compliance requirements.

Further, by expanding the permissible investment universe to include pre-listing opportunities, unlisted debt securities and overseas securities, the proposals are expected to provide greater diversification and flexibility to investors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.