SEBI has unveiled draft regulations to revamp Portfolio Management Services, including a new MF-only category with a reduced ₹25 lakh entry threshold. These changes seek to simplify compliance and offer investors broader access to pre-IPO, global, and derivative markets.
Detailed Coverage
The Securities and Exchange Board of India (SEBI) has released draft proposals to overhaul the regulatory framework for Portfolio Management Services (PMS). This move comes as the industry has seen massive growth, with Assets Under Management (AUM) jumping from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore by May 2026. The number of registered portfolio managers has also risen significantly to 515, highlighting the need for updated rules to match this scale.
New MF-Only Category and Lower Threshold
A notable change in the proposal is the introduction of a new 'MF-only' PMS category. Portfolio managers under this category would exclusively invest in direct plans of mutual funds, including Exchange Traded Funds (ETFs). For these specific schemes, SEBI has proposed reducing the minimum investment requirement to ₹25 lakh, down from the current ₹50 lakh limit for standard PMS. This shift is designed to make managed investment strategies available to a broader group of investors while reducing compliance and net-worth requirements for firms operating exclusively in this space.
Access to Global and Unlisted Markets
SEBI is also proposing to widen the investment scope for clients. The draft allows portfolio managers to invest in 'to be listed' securities, which could provide investors with earlier access to companies preparing for an Initial Public Offering (IPO). Additionally, discretionary portfolio managers may soon be able to allocate up to 10% of client assets into investment-grade unlisted debt.
On the global front, the regulator is proposing to permit investments in overseas listed equities, debt, and mutual funds. These investments would remain subject to FEMA guidelines and require clear consent from the client. These changes aim to align Indian PMS offerings with global investment standards, allowing for greater portfolio diversification.
Derivative Limits and Compliance
To manage risk while providing flexibility, the draft sets specific limits on the use of exchange-traded derivatives. The total derivative exposure is proposed to be capped at 1.25 times a client’s AUM. Within this, the regulator has suggested a limit of 50% of AUM for unhedged short equity derivative positions and a 10% cap for options exposure. These guardrails are intended to protect investors from excessive leverage.
By simplifying the language of the regulations and easing compliance burdens, SEBI aims to foster a more efficient industry environment. The regulator has invited public comments on these draft proposals until August 13, 2026. Investors should monitor the final notification from SEBI to understand the official timelines for implementation and whether any adjustments are made to these proposed thresholds based on industry feedback.