The Securities and Exchange Board of India (Sebi) has proposed a sweeping revamp of portfolio management regulations that would create a mutual fund-only portfolio management service (PMS) category while expanding the investment universe for portfolio managers to include to-be-listed, unlisted securities and overseas assets.
In a consultation paper issued on Thursday, the market regulator undertook a comprehensive review of the Sebi (Portfolio Managers) Regulations, 2020, aimed at broadening investment avenues, easing compliance and simplifying the regulatory framework for an industry whose assets under management (AUM) are fast growing.
PMS allows professional fund managers to run customized portfolios for affluent investors with a minimum investment of ₹50 lakh. The industry AUM has more than doubled to ₹42.61 trillion as of May 2026 compared to 2019. The total number of clients has surged to 219,000 from 150,000 in the same period.
The market regulator has recommended introduction of a dedicated mutual fund-only PMS framework, a move designed to bring professionally managed mutual fund portfolios to a wider pool of affluent investors.
Under the proposal, portfolio managers would be allowed to exclusively manage client money in direct plans of mutual fund schemes, including exchange-traded funds and specialized investment funds, through a separate MF-PMS registration.
Lower entry threshold
To make the model more accessible, Sebi has proposed lowering the minimum investment threshold for MF-PMS to ₹25 lakh from ₹50 lakh applicable to regular PMS, while reducing the minimum net worth requirement for applicants to ₹2 crore from ₹5 crore. Existing portfolio managers would be allowed to offer MF-PMS through a separate investment approach.
The regulator has proposed capping fixed management fees under the framework at 2.5% of client’s AUM, while allowing performance-linked fees or a combination of fixed and performance fees with explicit client consent.
To avoid conflicts of interest, mutual fund distributors operating an MF-PMS would have to maintain arm’s-length segregation between their distribution and portfolio management businesses, with the same client barred from receiving both services from the same entity.
In another significant change, Sebi has proposed allowing portfolio managers to invest client money in securities that are yet to be listed. The regulator said the current framework permits investments only in listed and traded securities and does not specifically provide for investments in “to-be-listed” securities.
Sebi has defined to-be-listed securities as “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” in the new regulation.
The consultation paper also proposes allowing discretionary portfolio managers to invest up to 10% of a client’s AUM in investment-grade unlisted debt securities.
Mint reported in April that the industry had made a representation to Sebi to allow discretionary PMS to invest in unlisted securities and anchor investments in IPOs. At present, only non-discretionary portfolio management services and advisory portfolios can invest up to 25% of client assets in unlisted securities.
Portfolio managers could also gain access to overseas markets under the proposed framework. Sebi has suggested allowing investments in listed foreign equities, listed debt securities and overseas mutual funds and unit trusts investing in listed securities and overseas real estate investment trusts. Such investments would remain subject to the Liberalised Remittance Scheme, FEMA limits and explicit client consent.
The regulator has simultaneously proposed greater flexibility in the use of exchange-traded derivatives. Portfolio managers would be allowed total exposure of up to 1.25 times a client’s assets under management, including unhedged short exposure through equity derivatives of up to 50% of assets, alongside limits on options exposure and mandatory positive client consent.
Beyond expanding investment opportunities, the draft paper proposes a series of compliance reforms.
These include redefining net worth to provide greater clarity, requiring at least 10% of net worth to be maintained in unencumbered liquid assets, allowing digital disclosure documents, extending several regulatory filing timelines, simplifying reporting formats and specifying certification requirements for compliance officers.
Sebi has also proposed easing operational requirements for smaller portfolio managers by relaxing the mandatory dealing room requirement for firms managing less than ₹100 crore or fewer than 10 clients, subject to adequate audit trails and internal controls.
Other proposals include enabling Indian portfolio managers to manage overseas funds and allowing independent fund managers to operate under a registered portfolio manager.
The regulator has also proposed phasing out legacy grandfathering provisions by requiring existing PMS clients below the current ₹50 lakh minimum investment threshold to comply within 36 months, except those under the proposed MF-PMS framework.
Public comments on the consultation paper have been invited until 13 August.
