SEBI Proposes Overseas Investment, Unlisted Debt Access For Portfolio Managers

The Securities and Exchange Board of India (SEBI) has put out a consultation paper proposing a wide-ranging review of the portfolio management services framework, prompted by the rapid growth of the industry.

Portfolio management services (PMS) assets under management (AUM) have grown from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore as of May 2026, more than doubling in seven years.

The regulator said the expansion in size and the growing sophistication of investors made a comprehensive review of the existing framework necessary. Comments on the proposals are due by 13 August.

Wider Investment Avenues

One of the most significant proposals is permitting portfolio managers to invest client funds in overseas securities, including listed equities, debt, mutual funds and REITs, subject to FEMA rules, Liberalised Remittance Scheme limits and explicit client consent. This would bring portfolio managers in line with mutual funds and alternative investment funds, which already have overseas investment permissions.

Portfolio managers would also be allowed to invest up to 10% of a client's AUM in investment-grade unlisted debt, a category currently not permitted. Investment in to-be-listed securities would also be opened up under the proposed framework.

New Mutual Fund-Only PMS Category

SEBI has proposed creating a dedicated mutual fund-only PMS category under which portfolio managers would invest exclusively in direct mutual fund schemes, exchange-traded funds and specialised investment funds. This category is designed for affluent investors who do not meet the standard PMS threshold but can handle higher risk than retail investors.

The minimum investment size for this category would be halved to ₹25 lakh from the current ₹50 lakh, while the minimum net worth requirement for portfolio managers in this category would be reduced to ₹2 crore from ₹5 crore. Fixed management fees for this category would be capped at 2.5% of AUM.

Derivatives And Operational Flexibility

Portfolio managers would be permitted greater use of derivatives under the proposals, with total derivatives exposure capped at 1.25 times a client's AUM. Unhedged short exposure through equity derivatives would be limited to 50% of AUM, subject to explicit client approval.

Smaller portfolio managers with fewer than ten clients or AUM below ₹100 crore would not be required to maintain a separate dealing room. SEBI has also proposed allowing independent fund managers to operate under registered portfolio managers, demat account portability and relaxation of the requirement to obtain powers of attorney from clients.

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