The Securities and Exchange Board of India (SEBI) has introduced a comprehensive new framework for portfolio managers, replacing the existing 2020 regulations. Approved at its board meeting on September 24, the SEBI (Portfolio Managers) Regulations, 2026, aim to foster the growth of the Portfolio Management Services (PMS) industry, streamline compliance, and consolidate regulatory provisions.
Expanded Investment Avenues for PMS Clients
One of the most significant changes under the new PMS investment rules is the expansion of permissible investment avenues. Portfolio managers will now be able to invest client funds in:
- Initial Public Offerings (IPOs) and primary-market debt issuances.
- Foreign Securities: This includes listed equities, debt instruments, Real Estate Investment Trusts (REITs), overseas mutual funds, Exchange Traded Funds (ETFs), index funds, and foreign government debt, all subject to the Foreign Exchange Management Act (FEMA) and RBI's Liberalised Remittance Scheme.
- Unlisted Debt Securities: Discretionary PMS clients can allocate up to 10% of their Assets Under Management (AUM) to investment-grade, non-convertible, unlisted debt securities, provided they give explicit consent.
Additionally, the framework offers greater flexibility for exchange-traded derivatives, permitting investments up to 1.25 times the client's AUM.
Introducing PRIM and Independent Fund Managers
The new regulations also bring forth innovative routes for managing client investments:
- Portfolio Managers Route for Investing in Mutual Fund Units (PRIM): This new route allows portfolio managers to invest clients' money directly into mutual funds, including ETFs, index funds, and Specialised Investment Funds (SIFs). The minimum investment under PRIM is set at ₹25 lakh. Management fees under PRIM will be capped at 1% of the client's AUM, with provisions for performance-based fees.
- Independent Fund Managers (IFMs): SEBI has introduced the concept of IFMs, who can manage and operate client portfolios in collaboration with a registered portfolio manager. The registered portfolio manager will bear full responsibility and liability for the IFM's activities. Clients are also granted a mandatory exit option if an IFM's association ends.
Simplified Compliance and Regulatory Streamlining
The overhaul significantly streamlines the regulatory landscape for portfolio managers. SEBI has reduced the PMS rulebook by 53%, shrinking it from 70 pages to 33 pages, and decreasing the word count by approximately 42%. The number of provisos has also been drastically cut from 47 to just four.
Key compliance relaxations include:
- Graduates are now eligible to serve as principal officers.
- Portfolio managers with AUM below ₹100 crore will be exempt from dealing-room requirements.
SEBI will also introduce a standardized Investment Management Agreement and promote digital disclosure documents, further easing operational burdens. This updated framework follows extensive stakeholder feedback and a public consultation process initiated in July 2026, with relevant suggestions incorporated into the final regulations.