SEBI PMS Proposal: The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing significant changes to the Portfolio Managers Regulations, 2020. The regulator has invited public comments on the proposals until August 13, with the objective of modernizing the regulatory framework in line with the rapid expansion of India's Portfolio Management Services (PMS) industry.

If implemented, the proposed reforms could provide portfolio managers with greater investment flexibility, expand investment opportunities for clients, and introduce a new category of PMS products with a lower minimum investment requirement.

Why Is SEBI Proposing New PMS Rules?

SEBI says the PMS industry has witnessed remarkable growth over the past few years, making it necessary to review the existing regulatory framework.

According to the consultation paper:

• PMS Assets Under Management (AUM) increased from ₹18.07 lakh crore in April 2019 to approximately ₹42.61 lakh crore as of May 31, 2026.
• The number of registered portfolio managers has grown from 226 in 2020 to 515.
• The number of PMS clients has also increased to around 2.19 lakh.

The regulator believes that the industry's growth warrants updated regulations that better reflect current investment practices and investor expectations.

Wider Investment Choices for Portfolio Managers

One of the most significant proposals is to broaden the range of securities in which PMS managers can invest on behalf of their clients.

SEBI has proposed allowing portfolio managers to invest in:

• Securities that are proposed to be listed.
• Certain investment-grade unlisted debt securities.
• Overseas investment products, subject to applicable regulations.

The objective is to give portfolio managers greater flexibility while constructing client portfolios.

Proposal to Allow Overseas Investments

The consultation paper also proposes permitting PMS managers to invest client assets in foreign securities, subject to the rules under the Foreign Exchange Management Act (FEMA).

Eligible overseas investments may include:

• Foreign listed equities
• Listed international debt securities
• Overseas mutual funds
• Other permitted foreign investment instruments

Before making overseas investments, portfolio managers would be required to obtain the client's consent.

This proposal could allow Indian PMS investors to gain broader geographical diversification through professionally managed portfolios.

Investment in Unlisted Debt Securities

SEBI has proposed allowing portfolio managers to invest up to 10% of client assets in investment-grade unlisted debt securities.

The move aims to provide portfolio managers with additional fixed-income investment opportunities while maintaining restrictions designed to manage risk.

Introduction of MF-PMS Category

Another notable proposal is the creation of a new category called Mutual Fund-Only PMS (MF-PMS).

Under this framework, portfolio managers would be permitted to invest exclusively in:

• Mutual funds
• Exchange Traded Funds (ETFs)
• Specialized Investment Funds (SIFs)

This structure is intended for investors seeking professionally managed portfolios built primarily using regulated pooled investment products.

Lower Minimum Investment Requirement

Currently, the minimum investment required for a PMS account is ₹50 lakh.

SEBI has proposed reducing the minimum investment for the proposed MF-PMS category to ₹25 lakh.

If approved, this change could make professionally managed investment solutions accessible to a wider group of high-net-worth investors.

How Could Investors Benefit?

If the proposals are implemented, investors may gain access to:

• Greater portfolio diversification
• Exposure to international markets
• More investment choices
• Professionally managed mutual fund-based portfolios
• Lower entry threshold for MF-PMS products

These changes could also reduce some of the structural differences between PMS offerings and certain professionally managed investment products.

Public Consultation Underway

The proposals are currently at the consultation stage and are not yet final regulations.

SEBI has invited comments and suggestions from stakeholders until August 13. After reviewing the feedback received, the regulator may revise, approve, or modify the proposals before issuing the final regulatory framework.

What Investors Should Know

At present, these are proposed regulatory changes, and existing PMS rules remain applicable until SEBI formally notifies any amendments.

Investors should avoid making portfolio decisions solely based on the consultation paper and should wait for the final regulations or consult their financial advisor before taking investment-related decisions.

Bottom Line

SEBI's proposed reforms represent one of the most significant updates to India's Portfolio Management Services framework in recent years. By expanding investment options, permitting overseas exposure under FEMA rules, proposing investment in select unlisted debt securities, and introducing the new MF-PMS category with a lower investment threshold, the regulator aims to make PMS more flexible and accessible while keeping investor protection at the forefront.

As the consultation process continues, investors and industry participants will be closely watching how these proposals evolve before the final rules are announced.