SEBI has released a consultation paper proposing to allow Portfolio Management Services (PMS) to invest in foreign securities and take unhedged short positions in equity derivatives. These changes aim to broaden investment options for high-net-worth clients and align PMS rules with other investment vehicles like Mutual Funds and AIFs. The proposals are currently open for public feedback.
Detailed Coverage
The Securities and Exchange Board of India (SEBI) has released a consultation paper on July 24, 2026, outlining major proposed changes for Portfolio Management Services (PMS). These proposals seek to modernize how portfolio managers handle client funds by introducing greater flexibility in global investing and derivative strategies.
Expanding Global Investment Avenues
Currently, PMS providers are generally restricted from investing client funds directly into international markets. The new proposal suggests allowing investments in listed foreign equity shares, foreign debt securities, and overseas mutual funds or unit trusts. This move is designed to provide high-net-worth investors with easier access to global diversification. SEBI has stated that this regulatory change aims to bring PMS providers in line with other investment structures, such as Alternative Investment Funds (AIFs) and Mutual Funds, which already possess similar cross-border investment capabilities. All such investments would be required to follow the Foreign Exchange Management Act (FEMA) guidelines and obtain explicit consent from the client.
New Flexibility in Equity Derivatives
The regulator is also looking to ease restrictions on how portfolio managers use exchange-traded derivatives. Under the proposed framework, managers could take unhedged short positions in equity derivatives up to 50% of a client’s total Assets Under Management (AUM). The total exposure to derivatives, including these shorts, would be capped at 1.25 times the client’s AUM. This proposal acknowledges the demand for more sophisticated strategies in personal wealth management. These short positions would be distinct from traditional hedging or portfolio rebalancing activities currently allowed under existing norms.
Other Proposed Changes
Beyond global and derivative flexibility, SEBI is considering allowing portfolio managers to invest in securities that are in the process of being listed. Additionally, discretionary portfolio managers may be permitted to allocate up to 10% of a client’s AUM into investment-grade unlisted debt securities. The regulator is also exploring a simplified framework for Mutual Fund-only Portfolio Management Services (MF-PMS) to lower entry barriers for smaller investors.
These proposals are part of a broader effort by SEBI to consolidate and simplify the regulatory environment for PMS providers. Since the document is currently in the consultation phase, the next step involves gathering feedback from market participants and stakeholders. Investors should monitor whether these proposals are adopted in their current form or if the regulator introduces additional safeguards, particularly regarding the risk management of unhedged derivative positions.