- SEBI proposes new Mutual Fund-only Portfolio Management Service with Rs 25 lakh minimum investment
- Minimum net worth for MF-PMS providers to be reduced to Rs 2 crore from Rs 5 crore
- Portfolio managers may invest in unlisted debt, foreign securities, REITs, InvITs under new rules
The Securities and Exchange Board of India (SEBI) has floated the biggest overhaul of India's portfolio management industry since the regulations were introduced in 2020, proposing a new Mutual Fund-only Portfolio Management Service (MF-PMS), lower entry barriers for new portfolio managers, a wider investment universe and a series of compliance relaxations aimed at broadening the wealth management market.
The consultation paper proposes introducing an MF-PMS category with a minimum investment requirement of Rs.25 lakh, compared with Rs.50 lakh for conventional portfolio management services. It also proposes reducing the minimum net worth requirement for MF-PMS providers to Rs. 2 crore from Rs. 5 crore, a move that could lower barriers to entry for boutique wealth managers and expand professionally managed investment solutions to a wider pool of affluent investors.
SEBI has also proposed expanding the range of investments available to portfolio managers. Under the draft framework, portfolio managers would be permitted to invest in securities proposed to be listed, investment-grade unlisted debt, foreign securities, overseas mutual funds, REITs and InvITs, subject to applicable conditions.
The consultation paper also proposes a revised derivatives framework, permitting aggregate exposure of up to 1.25 times a client's assets under management, subject to prescribed safeguards and explicit client consent.
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The proposals follow a comprehensive review of the Portfolio Managers Regulations after five years of implementation. SEBI said assets managed by portfolio managers have grown to Rs.42.61 lakh crore in May 2026 from Rs.18.07 lakh crore in April 2019, while the number of registered portfolio managers has more than doubled to 515 from 226. The number of clients has increased to 2.19 lakh from about 1.5 lakh during the period.
To simplify entry and operations, the regulator has proposed rationalising eligibility criteria for principal officers while retaining experience and certification requirements. It has also proposed relaxing certain infrastructure requirements, including dealing room norms for smaller portfolio managers, and easing employee-related requirements.
The consultation paper proposes several ease-of-doing-business measures, including permitting digital disclosure documents, rationalising filing timelines, broadening the definition of net worth to include securities premium reserves and simplifying reporting and compliance obligations. SEBI has also proposed moving several operational provisions from the regulations to circulars to enable quicker regulatory updates.
On investments, discretionary portfolio managers would be permitted to invest up to 10% of assets under management in investment-grade unlisted debt securities. Investments in securities proposed to be listed would also be permitted, providing greater flexibility in portfolio construction.
The proposed derivatives framework would permit aggregate exposure of up to 1.25 times a client's assets under management, with the additional 25% exposure available only through exchange-traded derivatives.
Unhedged short exposure through equity exchange-traded derivatives would be capped at 50% of assets under management, while total exposure related to option premiums paid and received would be limited to 10% of assets under management. Exchange-traded commodity derivatives would be permitted only for hedging and portfolio rebalancing.
Portfolio managers would also be required to obtain explicit client consent before undertaking derivatives transactions. Existing clients would need to execute addendums to their agreements before derivatives exposure can be undertaken on their behalf.
SEBI has also proposed easing client onboarding and transfers by examining relaxation of power of attorney requirements and introducing demat account portability to reduce documentation and operational friction when investors switch portfolio managers.
The regulator has proposed strengthening governance through clearer responsibilities for key personnel, enhanced disclosure standards, improved investor disclosures on fees and risks and streamlined reporting requirements.
It has also reorganised the regulations by creating separate chapters for registration, eligible fund managers and co-investment portfolio managers to improve regulatory clarity and remove duplication.
SEBI said the review is intended to modernise the PMS framework, reduce compliance costs and align the regulations with the rapid evolution of India's wealth management industry. Public comments on the consultation paper have been invited until August 13 before the regulator finalises the revised regulations.
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