Why in news?

The Securities and Exchange Board of India (SEBI) has proposed a sweeping review of the SEBI (Portfolio Managers) Regulations, 2020, through a consultation paper released recently.

This marks one of the most comprehensive reviews of portfolio management services (PMS) regulations since their notification in 2020.

What’s in Today’s Article?

• Why the Overhaul Is Needed?
• What Is Portfolio Management Service (PMS)?
• Key Proposed Reforms
• Balancing Innovation with Investor Protection

Why the Overhaul Is Needed?

• Assets managed by portfolio managers have more than doubled over the past six years, prompting SEBI to modernise the regulatory framework.
• The reforms aim to offer greater flexibility to portfolio managers and broader investment options to sophisticated investors, while adapting to the growing complexity of India's capital markets.

What Is Portfolio Management Service (PMS)?

• PMS is a professional investment service registered under the SEBI (Portfolio Managers) Regulations, 2020.
• A qualified fund manager manages the equity, debt, and other securities portfolio of a high net-worth client.
• Only SEBI-registered corporate entities, companies, or LLPs can legally offer PMS in India.
• SEBI mandates a minimum investment of Rs 50 lakh per client.
• Industry growth
  • PMS assets under management (AUM) rose from Rs 18.07 lakh crore (April 2019) to Rs 42.61 lakh crore (May 2026).
  • Total clients grew from 1.5 lakh to 2.19 lakh over the same period.
  • The number of registered portfolio managers more than doubled — from 226 in 2020 to 515 as of May 2026.

Key Proposed Reforms

• Wider Investment Universe
  • Portfolio managers may be permitted to invest in overseas listed equity and debt securities, aligning PMS rules with those governing mutual funds and alternative investment funds.
  • Investments allowed in "to-be-listed" securities, widening market exposure.
  • Discretionary portfolio managers may invest up to 10% of client AUM in investment-grade unlisted debt securities.
  • Currently, PMS managers cannot invest client funds in foreign securities — though resident individuals can do so independently via the Liberalised Remittance Scheme (LRS), capped at USD 250,000 per financial year.
• New 'Mutual Fund-Only' PMS (MF-PMS) Category
  • A simplified framework aimed at mass-affluent investors, focused exclusively on managing investments in direct plans of mutual funds, ETFs, and specialised investment funds.
  • Requires separate registration as MF-PMS.
  • Minimum client investment proposed to be reduced from Rs 50 lakh to Rs 25 lakh.
  • Minimum net worth requirement for applicants proposed to be lowered from Rs 5 crore to Rs 2 crore.
  • Mutual fund distributors (MFDs) operating under MF-PMS must maintain arm's length separation between their MFD and MF-PMS functions through distinct departments, with client-level segregation — the same client cannot be offered both services by one entity.
• Easing Compliance Burden
  • Greater flexibility in using derivatives for hedging and investment strategies, with exposure allowed up to 1.25 times client AUM.
  • A new framework permitting independent fund managers to operate under registered PMS platforms, with compliance responsibility remaining with the registered portfolio manager.
  • Firms managing assets below Rs 100 crore may be exempted from maintaining a separate dealing room, cutting operational costs for smaller players.

Balancing Innovation with Investor Protection

• SEBI has stressed that the reforms aim to strike a balance between innovation, ease of doing business, and investor safeguards.
• The regulator believes the evolving PMS industry requires a framework that supports greater product diversity while maintaining adequate oversight.

Conclusion

SEBI's proposed PMS overhaul reflects a maturing regulatory approach — expanding investment avenues and lowering entry barriers to serve a broader investor base, while retaining safeguards through segregation norms and enhanced oversight.

If implemented, it could significantly deepen and diversify India's portfolio management landscape.