Overhaul of portfolio management services: What SEBI has proposed and what it means for investors

The consultation paper marks one of the most comprehensive reviews of the Portfolio Managers Regulations since they were notified in 2020. If implemented after the public consultation process, the proposals could significantly reshape India’s PMS industry by offering greater flexibility to portfolio managers and broader investment options to sophisticated investors.

What’s PMS?

Portfolio management service (PMS) is registered under the SEBI (Portfolio Managers) Regulations, 2020. It is a professional investment service where a qualified fund manager takes charge of the equity, debt and other securities portfolio of a customer — who is a high net-worth individual. Only corporate entities, companies or LLPs with SEBI registration can legally offer these services in India. SEBI mandates that no PMS provider can accept less than Rs 50 lakh per client.

The assets under management (AUM) of the PMS industry reached Rs 42.61 lakh crore as on May 2026 from Rs 18.07 lakh crore as on April 2019. The total number of clients as of May 2026 stood at 2.19 lakh from 1.5 lakh in April 2019. The number of portfolio managers has more than doubled from 226 in 2020, when the regulations were revamped, to 515 as on May 31, 2026.

Wider investment universe for portfolio managers

One of the biggest changes proposed is the expansion of investment avenues available to portfolio managers. Currently, PMS providers face restrictions on investing in certain asset classes that are accessible to other regulated investment vehicles.

SEBI has proposed allowing portfolio managers to invest in overseas listed equity and debt securities, securities that are yet to be listed and a limited exposure to unlisted debt instruments. The move is intended to align PMS regulations more closely with those governing mutual funds and alternative investment funds.

The regulator has also proposed to expand the permissible investment universe to permit investments in “to be listed” securities. This would enable investors to gain exposure to broader market opportunities. Further, SEBI’s consultation paper has proposed that a portfolio manager offering discretionary portfolio management services may be permitted to invest up to 10% of its client’s AUM in investment-grade unlisted debt securities.

The regulator believes that broader investment flexibility would enable portfolio managers to design more diversified and customised portfolios for high-net-worth clients. The proposals also acknowledge growing investor demand for global diversification and access to a wider range of investment opportunities.

Currently, PMS portfolio managers are not permitted to invest client funds in foreign securities. However, resident Indians are allowed to invest in foreign securities under the Liberalised Remittance Scheme (LRS), subject to an overall limit of USD $250,000 per financial year.

New ‘mutual fund-only’ category of portfolio managers

SEBI has proposed a simplified ‘mutual fund-only’ PMS framework with lowered entry barriers. This proposed framework aims to effectively serve mass-affluent investors who seek professional portfolio management services for their mutual fund investments. This framework is introduced to enable portfolio managers intending to exclusively manage client investments only in direct plans of mutual funds schemes including exchange-traded funds and specialised investment funds.

PMS managers will have to obtain a separate registration as a MF-PMS. It has proposed that the minimum client investment requirement should be reduced from Rs 50 lakh to Rs 25 lakh. It has also proposed that the minimum net worth required for applicants may be reduced from Rs 5 crore to Rs 2 crore.

A mutual fund distributor (MFD) registered under the MF-PMS framework will be required to maintain arm’s length relationship between its activities as an MFD and a MF-PMS through a separately identifiable department or division. The MF-PMS will be required to have client level segregation for its services as an MFD and MF-PMS. The same client will not be offered both services by the same entity under MFD and MF-PMS, Sebi says.

Easing compliance while strengthening flexibility

Besides widening investment choices, SEBI has proposed several measures aimed at improving operational efficiency and reducing compliance costs.

Among the key proposals is greater flexibility in the use of derivatives for hedging and investment strategies, with exposure permitted up to 1.25 times the client’s assets under management. SEBI has also floated a framework that would allow independent fund managers to operate under registered portfolio management platforms, while regulatory compliance responsibilities would remain with the registered portfolio manager.

Another proposal seeks to ease infrastructure requirements for smaller portfolio managers. Firms managing assets below Rs 100 crore may no longer be required to maintain a separate dealing room, reducing operational costs without materially affecting investor protection.

Balancing innovation with investor protection

SEBI has emphasised that the proposed reforms are intended to strike a balance between innovation, ease of doing business and investor safeguards. As the PMS industry evolves, the regulator believes the framework must reflect greater product diversity while maintaining adequate oversight. The proposed reforms offer a wider choice for investors for investment in several asset classes.