SEBI proposes major PMS overhaul, opens door to overseas and pre-IPO investments

The Securities and Exchange Board of India (SEBI) on Thursday proposed a comprehensive overhaul of the Portfolio Managers Regulations, seeking to widen investment opportunities, simplify compliance and introduce a new mutual fund-only portfolio management service (MF-PMS) framework aimed at making professionally managed investments more accessible.

The proposals come after a review of the sector, which has seen assets under management more than double to ₹42.61 lakh crore as of May 2026 from ₹18.07 lakh crore in April 2019, while the number of registered portfolio managers has risen to 515 from 226 in 2020.

"The changes in the PM Regulations are being proposed to ensure enabling more investment avenues for development of the PMS industry, ease of compliance, consolidation of regulatory provisions and simplification of language," SEBI said in a draft paper.

SEBI plans to explicitly allow portfolio managers to invest client funds in "to be listed" securities, enabling clients to participate in investment opportunities before listing.

The regulator has also proposed permitting discretionary portfolio managers to invest up to 10 per cent of a client's assets under management in investment-grade unlisted debt securities, while retaining existing safeguards.

Portfolio managers would be allowed to invest client funds in overseas listed equities, listed debt securities and overseas mutual funds, subject to FEMA limits and explicit client consent.

SEBI has also proposed introducing a dedicated MF-only PMS category under which portfolio managers will invest exclusively in direct plans of mutual funds, including ETFs and specialised investment funds. The new framework proposes a lower minimum investment threshold of ₹25 lakh compared with ₹50 lakh under the existing PMS regime, along with reduced net worth and compliance requirements for operators.

Public comments on the proposals have been invited by August 13.

It has also 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 AUM, with unhedged short exposure through equity derivatives capped at 50 per cent of AUM and options exposure limited to 10 per cent, subject to explicit client consent.

The draft regulations propose several ease-of-compliance measures, including digital disclosure documents, simplified reporting timelines and rationalised qualification requirements for principal officers.