Market regulator Securities and Exchange Board of India (SEBI) has proposed a comprehensive overhaul of the regulatory framework governing portfolio management services (PMS),
unveiling a wide-ranging consultation paper that aims to expand investment opportunities, simplify compliance, modernise operational requirements and improve investor protection.
The proposals include allowing portfolio managers to invest clients' money in overseas securities and 'to be listed' securities, introducing a dedicated mutual fund (MF)-only PMS framework, permitting limited investments in unlisted debt securities under discretionary portfolio management, rationalising compliance requirements and simplifying several provisions in the existing regulations. Public comments on the proposals have been invited until 13 August 2026.
The consultation paper forms part of SEBI's comprehensive review of the SEBI (Portfolio Managers) Regulations, 2020, undertaken in view of the rapid expansion of the PMS industry and evolving investor expectations.
PMS Industry Has More Than Doubled
SEBI noted that the PMS industry has witnessed substantial growth since the regulations were revamped in 2020. Assets under management (AUM) have increased to ₹42.61 lakh crore as of 31 May 2026, from ₹18.07 lakh crore in April 2019, while the number of clients has grown to 219,000 from 150,000. The number of registered portfolio managers has also more than doubled, rising from 226 in 2020 to 515 by May 2026.
According to the market regulator, the expansion reflects growing investor confidence in professionally managed investment portfolios and highlights the need to update the regulatory framework to accommodate changing market dynamics, greater investor sophistication and demand for personalised investment solutions.
Wider Investment Universe Proposed
One of the key proposals is to broaden the range of investment opportunities available to portfolio managers.
Investment in 'To Be Listed' Securities
SEBI has proposed explicitly allowing portfolio managers to invest client funds in securities that are yet to be listed on recognised stock exchanges. At present, the regulations permit investments primarily in listed and traded securities.
The regulator believes the change would improve portfolio diversification and provide investors with access to a wider range of investment opportunities. A formal definition of 'to be listed securities' has also been proposed for greater regulatory clarity.
Limited Investment in Unlisted Debt
Another proposal would permit discretionary portfolio managers to invest up to 10% of a client's AUM in investment-grade unlisted debt securities.
Existing rules already allow non-discretionary portfolio managers and advisory services to invest up to 25% of client assets in unlisted securities. SEBI believes extending limited flexibility to discretionary portfolio managers would better reflect changing market conditions while retaining existing prudential safeguards.
Overseas Investment through Portfolio Managers
Among the most significant proposals is allowing portfolio managers to invest clients' money in foreign securities.
Currently, resident Indians may invest overseas under the liberalised remittance scheme (LRS), but portfolio managers cannot directly manage such overseas investments for their clients.
SEBI has proposed permitting investments in listed overseas equities, listed debt securities and units of overseas mutual funds or unit trusts regulated by foreign authorities that invest in listed securities and overseas real estate investment trusts (REITs). Any such investments would continue to remain subject to the Foreign Exchange Management Act (FEMA), applicable investment limits and reporting requirements. Portfolio managers would also need to obtain explicit consent from clients before making overseas investments.
The regulator said the proposal would create regulatory parity between portfolio managers and other investment vehicles, such as mutual funds, alternative investment funds (AIFs), and IFSC-based portfolio managers, which already have access to overseas investment opportunities.
New Mutual Fund-only PMS Proposed
SEBI has also proposed introducing a dedicated mutual fund-only portfolio management service (MF-PMS) to make professionally managed portfolios more accessible to mass-affluent investors.
Under the proposed framework, MF-PMS providers would invest exclusively in direct plans of mutual fund schemes, exchange-traded funds (ETFs) and specialised investment funds (SIFs).
To encourage wider participation, SEBI has proposed reducing the minimum investment requirement from ₹50 lakh to ₹25 lakh for MF-PMS.
The minimum net worth requirement for applicants would also be lowered from ₹5 crore to ₹2 crore, while qualification and certification norms for principal officers would be simplified. Other proposed relaxations include making an additional employee and dedicated dealing room optional, introducing simplified disclosure documents and exempting MF-PMS providers from existing PMS exit-load provisions.
The regulator has proposed capping fixed management fees at 2.5% of client AUM, although portfolio managers may also charge performance-linked fees or a combination of both with explicit client consent. It has also proposed operational safeguards requiring clear segregation between mutual fund distribution and MF-PMS activities to avoid conflicts of interest.
Greater Flexibility in Derivatives
SEBI has proposed giving portfolio managers more flexibility to use exchange-traded derivatives.
Under the proposal, total exposure through derivatives would be capped at 1.25 times a client's AUM. Within this limit, unhedged short positions through equity derivatives could extend up to 50% of AUM, while option premium exposure would remain capped at 10% of client assets.
Participation in such strategies would require explicit consent from clients.
Ease of Compliance Measures
A substantial portion of the consultation paper focuses on simplifying regulatory compliance for portfolio managers.
Among the proposed measures are aligning the definition of related parties with the Companies Act, rationalising educational qualifications for principal officers, redefining net worth requirements, allowing digital disclosure documents, extending filing timelines from seven working days to ten calendar days for certain disclosures, clarifying treatment of operating expenses and extending timelines for corporate governance reporting.
SEBI has also proposed defining geographical boundaries for portfolio managers' operations, requiring newly registered portfolio managers to establish business activity within three years, simplifying reporting formats and prescribing certification requirements for compliance officers.
Simpler Regulations and Removal of Outdated Provisions
To improve readability and reduce duplication, SEBI has proposed reorganising various provisions governing registration, eligibility, co-investment portfolio managers and operational responsibilities into clearer thematic chapters.
The consultation paper also recommends shifting several standard forms to the master circular, simplifying disclosure requirements and removing obsolete transitional provisions and duplicated clauses that are no longer considered necessary.
Among the changes, existing portfolio managers would eventually have to ensure that all PMS clients, except those under the proposed MF-PMS framework, meet the revised minimum investment threshold of ₹50 lakh within 36 months after the new regulations take effect.
Additional Reforms under Consultation
Besides the regulatory overhaul, SEBI has sought public comments on several additional proposals.
These include relaxing the requirement for dedicated dealing rooms for smaller portfolio managers with fewer than 10 clients or AUM below ₹100 crore, subject to appropriate audit trails and internal controls.
The regulator has also invited views on allowing eligible fund managers registered under PMS regulations to manage overseas funds investing in foreign securities, introducing a framework for independent fund managers operating under a registered portfolio manager, enabling portability of demat accounts when investors switch portfolio managers and reducing reliance on separate Powers of Attorney by streamlining operational processes.
SEBI has placed the draft Portfolio Managers Regulations, 2026, along with comparative tables and technical annexures, in the public domain and has invited comments from stakeholders and market participants by 13 August 2026.
The regulator said the review is intended to ensure that the PMS regulatory framework remains aligned with evolving investment practices, technological developments and the changing needs of investors while balancing operational flexibility with investor safeguards.
