SEBI Clarifies ND-PMS Clients Can Pledge Securities Held In Demat Accounts

The Securities and Exchange Board of India (SEBI) has issued a clarification. It said that clients who use Non-Discretionary Portfolio Management Services (ND-PMS) may pledge securities in their demat accounts to get personal loans.

The clarification was given through an informal guidance letter from SEBI dated 18 May 2026.

What Triggered The Clarification?

The guidance was issued after Geojit Financial Services approached the regulator seeking clarity on the treatment of securities held under the ND-PMS structure.

The company wanted to know whether clients could pledge securities purchased under ND-PMS and held with an approved custodian, either directly or through instructions routed via the portfolio manager.

Geojit had also sought clarity on whether such pledging could be treated as borrowing by the portfolio manager under existing PMS regulations.

What SEBI Said

In its response, SEBI referred to Regulation 23(1) of PMS Regulations, which states that non-discretionary portfolio managers operate according to the instructions given by clients.

The regulator clarified that the client remains the beneficial owner of the securities and therefore retains the right to use those assets, including securities under PMS, as collateral for loans.

SEBI further stated that restrictions on borrowing by portfolio managers under Regulation 23(8) do not apply in cases where the borrowing arrangement exists directly between the client and the lender.

According to the clarification, pledging is permitted as long as the instruction is initiated solely by the client or carried out at the client’s discretion.

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Securities Can Continue Under PMS Reporting

The regulator also clarified that pledged securities can continue to remain part of the portfolio manager’s assets under management (AUM) and regulatory disclosures until the pledge is actually invoked.

This is because ownership of the securities continues to remain with the client unless the lender invokes the pledge.

The clarification is expected to provide additional operational clarity for portfolio managers and investors operating under the non-discretionary PMS framework.

Sources:

Moneycontrol

Business Standard