JSA Prism | Securities Law | August 2026

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Modernising the portfolio management framework: The Securities and Exchange Board of India’s comprehensive review of the portfolio managers regulations

The Securities and Exchange Board of India (“SEBI”), on July 23, 2026, a consultation paper proposing a comprehensive review of the SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”), accompanied by a full draft of replacement regulations. It proposes overseas investment access, a new mass-affluent entry tier, calibrated derivative limits, and streamlined governance, for an industry whose Assets Under Management (“AUM”) has more than doubled since 2020.

The proposals respond to an industry that has outgrown the assumptions of the PMS Regulations, while preserving the investor-protection principles that have defined SEBI’s approach to discretionary management since inception.

SEBI has, as a part of its process of enhancing ease of doing business, undertaken multiple modifications to the existing PMS Regulations, including changes to the disclosure document format and digital onboarding processes. SEBI has also created a new asset class – Specialized Investment Fund (“SIF”) to bridge the gap between Mutual Funds (MFs”) and Portfolio Management Services (“PMS”). SEBI has also recognised the role of Self-Regulatory Organisation (“SRO”) being the Association of Portfolio Managers of India (“APMI”).

Why the existing framework needed a review

The PMS Regulations trace their origin to January 1993. The framework was substantially revised in 2020, when SEBI doubled the minimum client investment threshold to INR 50,00,000 (Rupees fifty lakh) and raised the minimum net worth requirement to INR 5,00,00,000 (Indian Rupees five crore), principally to keep retail money out of a product whose risks and illiquidity were not always well understood, and to weed out under-capitalised entities to reduce systematic risks.

The PMS Regulations were designed for an industry considerably smaller more limited in scope than that which currently exists; both AUM and client registration numbers have more than doubled since 2019. Concurrently, investor expectations have undergone a qualitative shift, with clients increasingly expecting access to overseas markets, unlisted opportunities and structured derivative strategies as part of a genuinely personalised investment mandate, rather than a standardised, domestic-equity-only product. SEBI’s account of the review process is instructive, rather than proceeding unilaterally, it commissioned a survey of stakeholders through the APMI, supplemented with direct consultations, before arriving at the draft now available for public comment. That process signals a philosophy treating PMS as a maturing, self-aware industry capable of informing its own regulation, rather than one regulated purely from the top down.

Emerging regulatory themes

Expanding the investment canvas through calibrated liberalisation

Historically, the PMS Regulations confined the investment universe to listed, quoted domestic securities; any overseas exposure a client wanted had to be arranged individually under the Reserve Bank of India’s Liberalised Remittance Scheme, outside the manager’s regulatory perimeter. The discussion paper proposes bringing overseas listed equity, listed debt, and regulated overseas fund units within the SEBI-supervised structure to achieve parity with MFs, Alternative Investment Funds (“AIFs”), and IFSC-based portfolio managers that already enjoy this freedom. The same logic extends to “to-be-listed” securities and, for discretionary mandates, up to 10% of a client’s assets in investment-grade unlisted debt, previously reserved for non-discretionary and advisory mandates. None of these expansions is unconditional. Each carries quantitative ceilings, credit-quality filters, or explicit consent requirements, including a proposed cap of 1.25 (one point two five) AUM on total derivative exposure, with narrower sub-limits on unhedged short positions and options premium. The pattern is conditional permission rather than blanket liberalisation: SEBI proposes to widen the investment universe while retaining direct control over how much of a portfolio can be exposed to any single new risk category. This explicitly recognises the various product categories investors seek access to, including foreign equity and unlisted instruments.

Segmenting the market for the mass-affluent investor

A recurring theme is the proposal for a dedicated ‘Mutual Fund-only’ PMS category, which would permit registration at a lower net worth of INR 2,00,00,000 (Indian Rupees two crore) and a reduced client ticket size of INR 25,00,000 (Indian Rupees twenty-five lakh), with simplified disclosure formats and a management fee capped at 2.5% of AUM. Because this framework confines the manager to scheme selection rather than direct security picking, the lighter compliance burden matches a lower-risk activity, reflecting proportionate rather than uniform regulation. SEBI has paired this new entry point with the removal of legacy grandfathering that allowed some full-service PMS clients to remain below the INR 50,00,000 (Indian Rupees fifty lakh) threshold requiring eventual migration to the higher floor. Read together, the proposals suggest a deliberate bifurcation of the market rather than a general dilution of standards: broader access below the traditional threshold, reinforced discipline above it. That said, the overlap between SIFs and the MF-only PMS category may create scope for cannibalisation between the two.

Simplification as a regulatory philosophy, not a drafting exercise

A substantial portion of the paper consolidates provisions on registration, eligibility, co-investment, and general obligations into thematic chapters, aligns definitions with other regulations, and deletes transitory clauses, consistent with SEBI’s parallel ease-of-doing-business initiatives for MFs and AIFs.

Recalibrating governance around proportionality and capital quality

SEBI also seeks to recalibrate governance expectations through a more proportionate approach. Rather than applying a one-size-fits-all framework, the proposals align governance and financial resilience requirements with each portfolio manager’s scale, complexity, and risk profile. This shift towards risk-based supervision ties regulatory expectations to the nature of the services offered and the operational risks involved. By emphasising robust governance and adequate financial capacity, SEBI aims to strengthen investor confidence while supporting long-term stability in the PMS ecosystem. For instance, SEBI proposes requiring portfolio managers to establish meaningful operations within 3 (three) years of registration by maintaining at least 10 (ten) clients or an AUM of INR 5,00,00,000 crore (Indian Rupees five crore), ensuring that registered entities demonstrate genuine operational capability rather than merely holding a licence. The paper also proposes that portfolio managers must not carry out investment management operations or execute transactions relating to PMS outside India, except for trades in overseas securities.

New structural models and investor mobility

The consultation paper proposes the extension of the eligible fund manager route, to permit management of overseas funds’ investments in overseas securities, positioning India-based managers for global mandates. It also introduces a model for independent fund managers operating under a single registered portfolio manager, lowering entry barriers for specialist talent while preserving a single point of regulatory accountability.

On investor mobility, SEBI proposes a one-time onboarding process so that switching PMS managers would involve a transfer of holdings and records rather than requiring a fresh demat account, know your customer, and documentation, reducing the procedural friction that currently discourages switching.

The procedural burden often discourages investors from switching PMS managers, even when they are dissatisfied with the service. Easier switching may therefore increase competitive pressure on PMS managers to retain clients through consistent performance and service quality. However, whether this increased competition will primarily benefit investors or place disproportionate pressure on smaller PMS firms remains to be seen.

Separately, industry participants have questioned whether the expected ‘consolidation wave’ will in fact materialise, since PMS, unlike mutual fund schemes, is a bespoke investment product with portfolios constructed on an account-by-account basis rather than through a pooled vehicle.

Practical implications for market participants

For portfolio managers, the proposals call for advance planning on capital structure and governance: the redefined net worth test, business-commencement threshold, and compliance-officer qualification standard all require lead time. Wealth managers and family offices gain an expanded onshore product shelf (foreign securities, unlisted debt, and to-be-listed instruments), reducing reliance on ad hoc structuring, but will need updated investment policies and consent documentation. High Net-worth Individuals(HNIs) and institutional investors gain wider diversification options but should expect more granular, consent-based disclosures. Legacy clients below INR 50,00,000 (Indian Rupees fifty lakh) should anticipate transition to the higher threshold, while mass-affluent investors, previously outside the PMS eligibility band, gain a new entry point through MF-PMS. For listed companies and capital markets professionals, expanded unlisted debt and to-be-listed allocations, together with the independent fund manager model, could deepen institutional demand for pre-listing and unlisted debt instruments. Compliance officers and in-house legal teams will find a more organised set of regulations, alongside new obligations around consent formats, derivative-exposure computation, and revised filing timelines.

Conclusion

Taken together, the proposals describe an attempt to build a regulatory architecture proportionate to the scale the PMS industry has already reached, and flexible enough to accommodate the direction in which it is heading, greater global integration, more differentiated client segments, and more sophisticated instruments. The recurring pattern is liberalisation bounded by proportionate governance: wider investment powers and simpler compliance are extended alongside sharper capital-quality standards, clearer accountability and more granular consent requirements. This mirrors the trajectory SEBI has followed with MFs and AIFs in recent years and reflects a broader regulatory objective of building a modern, globally competitive asset management ecosystem without loosening the guardrails that protect investor confidence.

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