SEBI (Portfolio Managers) Regulations, 2026: A comparison with the 2020 Regulations

Introduction

On 24 September 2026, the Board of the Securities and Exchange Board of India (‘SEBI’), at its 215th meeting (‘Board Meeting’),[1] approved the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2026 (‘PMS Regs 2026’)[2]. Two weeks later, on 7 October 2026, the PMS Regs 2026 were notified by SEBI and are scheduled to come into effect on 1 April 2027, replacing the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 (‘PMS Regs 2020’)[3] that are currently in force. Around three months ago, on 23 July 2026, SEBI had issued a consultation paper (‘Consultation Paper’)[4] containing a draft of the PMS Regs 2026 (‘Draft Regulations’)[5] for public comment.

In the Consultation Paper, SEBI had stated four objectives for the proposed new framework, namely: (i) developing the portfolio management services (‘PMS’) industry, (ii) easing compliance, (ii) consolidating provisions and simplifying their language, and (iv) removing redundant provisions.[6] According to SEBI’s Press Release,[7] the length of the regulations has been reduced from 70 pages to 33, the word count has fallen by about 42%, and the number of provisos has fallen from 47 to 4. The revamping of the PMS Regs 2020 comes about as the PMS industry has grown: the number of registered portfolio managers (‘PMs’) rose from 226 in 2020 to 515 as on 31 May 2026.[8]

Investment in IPOs and primary debt issuances

Currently, under the PMS Regs 2020, a discretionary PM may invest client funds, on their behalf only in (a) securities listed or traded on a recognised stock exchange, (b) money market instruments, (c) units of mutual funds, and (d) other securities specified by SEBI.[9] The PMS Regs 2020 do not expressly permit investments in ‘to-be-listed’ securities. As a result, shares offered in an initial public offering (‘IPO’) and debt securities offered in a primary issue fall outside the list of permitted investments, a gap SEBI itself acknowledged in its Consultation Paper.[10]

Under the PMS Regs 2026, a PM may advise for investment and invest in initial public offers of equity securities and primary market issuances of debt securities, alongside securities listed or traded on a recognised stock exchange, money market instruments, units of mutual funds and other securities specified by SEBI from time to time.

The Draft Regulations had proposed to insert a definition of ‘to be listed securities’. The PMS Regs 2026 do not contain such a definition but do permit a PM to invest in IPOs and primary debt issuances.[11]

Once PMS Regs 2026 comes into effect, PMS clients will be able to participate in new issues, instead of buying the same securities later on the exchange.

Investment in Unlisted Securities

Under the PMS Regs 2020, since a discretionary PM can invest only in the instruments listed in Regulation 24(3), it cannot invest client funds in unlisted securities.[12] A PM offering non-discretionary or advisory services can invest, or advise investment, up to 25% of a client’s assets under management (‘AUM’) in unlisted securities, in addition to the securities permitted for discretionary portfolios.[13] Within this 25%, a non-discretionary PM may invest up to 10% of the client’s AUM in unlisted, unrated securities of issuers other than its associates and related parties.[14]

The Consultation Paper provided that PMs offering discretionary PMS may invest up to 10% of client AUM in investment-grade, non-convertible, unlisted debt securities, with client consent.

The PMS Regs 2026 do not prescribe the ceiling for investment in unlisted securities by PMS clients, but merely state that the limits and conditions will be specified by SEBI through a circular.[15]

Investment in derivatives

Under the PMS Regs 2020, PMs can invest client funds in derivatives, including for hedging and portfolio rebalancing through recognised stock exchanges, on the terms set out in the agreement with the client.[16] A client’s total derivative exposure cannot exceed the client’s portfolio funds.[17] A PM is prohibited from leveraging a client’s portfolio for investment in derivatives.[18] PMs are also barred from speculative transactions, that is, transactions settled otherwise than by actual delivery, but derivatives are expressly carved out of this bar.[19] In effect, derivative exposure is capped at the client’s funds.

In the Consultation Paper, SEBI had proposed the following new limits:

Total Exposure: The portfolio manager shall be permitted to undertake a total exposure not exceeding 1.25 times the client’s AUM.
Limit on unhedged short exposure: Within the total exposure limit, the portfolio manager may undertake unhedged short exposure, only through equity exchange traded derivatives, up to 50% of the client’s AUM, in addition to the derivative exposure undertaken for hedging and portfolio rebalancing.
Limit on options: The total exposure related to option premium paid and received will not exceed 10% of the client’s AUM.
Explicit Positive Client Consent: Such participation will be subject to explicit positive consent from existing and new clients.

The PMS Regs 2026 do not provide the applicable limits for investments in derivatives but rather leaves it to SEBI to set limits and conditions, possibly through circulars.

Investment in foreign securities

The PMS Regs 2020 do not expressly prohibit investment in foreign securities. However, on a practical note, at present a resident individual’s overseas investments cannot be managed by a PM since Regulation 24(3) of the PMS Regs 2020 confines the permissible investment universe to securities listed or traded on recognised Indian stock exchanges, money market instruments and other domestic instruments. Further, Regulation 24(10) prohibits investments based on the advice of any other entity, covering both affiliates and third parties and extending to research inputs and model portfolios, and Regulation 24(9) bars investments through any other portfolio manager, ruling out layered manager-of-managers structures. Regulation 23(1), which requires the portfolio manager to act individually and independently, rules out global models where strategy is developed by a foreign parent and merely implemented in India.

Regulation 17(1)(c) of the PMS Regs 2026 expressly states that ‘the discretionary and non–discretionary portfolio manager shall invest funds of its clients in such foreign securities and in such manner as maybe specified by the board from time to time.’ Regulation 16(2) of the PMS Regs 2026 which requires investment management operations and transaction execution to remain within India carves out an exception for the execution of trades involving foreign securities.[20]

Therefore, it may be expected that, on or before 1 April 2027, when the PMS Regs 2026 will come into force, SEBI will issue a circular prescribing limits and the procedure for PMs to invest client funds in foreign securities. Needless the say, such investments should comply with the Foreign Exchange Management Act, 1999 (‘FEMA’) and the various regulations issued by the Reserve Bank of India under FEMA. For resident individual clients, investments in foreign securities would count towards their annual LRS limit.

Eligible Fund Managers (EFMs)

The PMS Regs 2020 recognise eligible fund managers (EFMs), in alignment with Section 9A of the Income-tax Act, permitting a registered Portfolio Manager to act as an EFM for an eligible investment fund. However, since Portfolio Managers are not permitted to invest in foreign securities, EFMs are in practice unable to manage or advise such funds in respect of overseas securities. Separately, the regulations contain no concept of an independent fund manager (IFM) who originates and manages clients under another registered Portfolio Manager; fund management activity and Principal Officer accountability rest solely with the officers of the registered Portfolio Manager.

The PMS Regs 2026 provide for EFMs to manage and advise an eligible investment fund in overseas securities, subject to the condition that where such a fund invests in Indian securities, the investment limits remain aligned with the prevailing FPI framework. In addition, the PMS Regs 2026 permits IFMs to manage and operate client portfolios in association with a registered Portfolio Manager, subject to prescribed safeguards. The associated safeguards contemplate the following: the registered Portfolio Manager bears full responsibility and liability; the IFM must satisfy the same qualification, experience and certification requirements as a Principal Officer; fees are payable directly to the registered Portfolio Manager; IFM orders must flow through the Portfolio Manager's infrastructure; one Portfolio Manager may affiliate with several IFMs, but an IFM may operate under only one Portfolio Manager at a time; a mandatory exit option applies where the IFM leaves or is terminated; and APMI maintains a central database of active IFMs. Further operational processes and requirements are expected to be specified through circulars or other directions ahead of implementation.

Educational Qualification for PO

Under the PMS Regs 2020, a Principal Officer is required to hold a professional qualification in finance, law, accountancy or business management from a recognised Indian or foreign university, or a CFA charter (or a specified NISM postgraduate programme), together with at least five years of relevant securities-market experience, of which at least two years have to be in portfolio management, investment advisory or fund management, along with the specified NISM certification.[21] A plain graduate is therefore not eligible to act as a Principal Officer on the strength of a graduate degree alone. The PMS Regs 2026 relaxes the educational qualification requirement and allows a plain graduate to act in that capacity, subject to the applicable experience and certification requirements.

Dealing-room requirement

Under the PMS Regs 2020, Portfolio Managers are required to maintain a dedicated, segregated dealing room with recorded lines only, mobile phones are not permitted inside the dealing room, and the room is required to have restricted internet access.[22] This requirement applies to Portfolio Managers generally and was not waived on the basis of AUM size. The new framework provides for a relaxation of the dealing-room requirement for Portfolio Managers with AUM below ₹100 crore, a category SEBI estimates covers approximately 48% of registered Portfolio Managers.

Investment in mutual fund units

Under the PMS Regs 2020, PMs may invest client funds in mutual fund units only through direct plans and may not charge clients any distribution-related fees on such investments.[23] The PMS Regs 2026 have introduced the Portfolio Management Service Route for Investment in Mutual Fund units (‘PRIM’) and PMs may obtain a licence exclusively for PRIM. The Draft Regulations called this category ‘MF only PMS (MF-PMS)’.

PMs with a PRIM licence may invest client funds only in direct plans of mutual funds in India, including index funds, ETFs and specialised investment funds (SIFs).[24] An existing PM may offer PRIM under segregated investment approaches, subject to conditions SEBI may specify.[25] Minimum investment per client under PRIM is reduced to ₹25 lakh [26] from ₹50 lakh.[27] Further, the net worth requirements for a PM who intends to operate only within PRIM is lower (₹2 crore instead of ₹5 crore) than the net worth required for other PMs.

The Press Release informs us that the following exemptions and limits were approved at the Board Meeting:

a waiver of exit load provisions. Currently, the PMS Master Circular provides for exit loads to be capped at 3%, 2% and 1% of the amount redeemed in the first, second and third years respectively, except for large value accredited investors.[28]
a prudential cap of 25% on investment in schemes of affiliated, group or associate AMCs as opposed to the 2020 regime under which the PMS Master Circular provides restrictions on investments in associates and related parties of a portfolio manager did not extend to investments in mutual fund schemes, but applied only to direct investments in equity, debt and hybrid securities.[29]
a fixed management fee capped at 1% of the client’s AUM, with permissible performance-based fees; and
segregation of mutual fund distribution activities and clients from PRIM activities and clients, except in the case of accredited investors.

The PMS Regs 2026 do not mention the abovementioned limits or exemptions, which are likely to be prescribed by SEBI through circulars.

Standardised IMA and Power of Attorney

Under the PMS Regs 2020, the client agreement is required to be in writing and to cover the matters set out in Schedule IV,[30] with each Portfolio Manager using its own Investment Management Agreement, as there is no SEBI-prescribed standard IMA. Industry practice is to execute a separate Power of Attorney covering demat, trading and often bank operations, in addition to the IMA, and this POA is submitted to banks for operation of the client's bank account.

The framework has been streamlined. A standardised IMA has been introduced for ease of client understanding, and the authority to operate the demat and trading accounts is now embedded within the standard IMA itself, doing away with the need for a separate POA for those purposes.

Digital Disclosure Document

The PMS Regulations, 2020 require a portfolio manager to provide the Disclosure Document to the client prior to entering into an agreement, in the format specified by SEBI and accompanied by a certificate in Form C.[31] The PMS Regulations, 2020 contemplates the Disclosure Document as a standalone document that is required to be filed with SEBI and made available on the portfolio manager’s website but did not expressly prescribe a digital mode of delivery as the primary channel.

Under the PMS Regulations, 2026, a portfolio manager is expressly required to provide the Disclosure Document to the client in digital format prior to entering into the investment agreement, along with a disclosure document certificate in the format to be specified by SEBI from time to time.[32] The PMS Regulations, 2026 further require the portfolio manager to provide a physical copy only upon request of the client and without any cost.[33]

The PMS Regulations, 2026 also require the portfolio managers to maintain the latest Disclosure Document (together with any addendum) on their website at all times, update it annually, file updated versions and material-change, if any with SEBI, and communicate material changes to clients within fifteen calendar days.[34]

Accordingly, the regulatory approach will shift from a disclosure regime centred on the Disclosure Document as a prescribed document to a framework that expressly recognises and promotes digital delivery of disclosures. This is expected to facilitate faster dissemination of information, improve accessibility and ensure that clients receive timely updates regarding material developments in the portfolio management services offered by portfolio managers.

Operating expenses

Under the PMS Regs 2020, operating expenses chargeable to a client, over and above management fees and performance-linked fees (and excluding brokerage at actuals), are capped at 0.50% per annum of the client's average daily assets under management (AUM).[35] It did not expressly clarify whether statutory levies are required to be included within or excluded from that operating expense cap. Accordingly, there is uncertainty regarding the treatment of statutory levies for the purpose of calculating the 0.50% limit.

SEBI’s Press Release states that statutory levies will be expressly carved out from the operating expense cap.[36] As a result, statutory levies imposed by law may be recovered separately and will not form part of the existing 0.50% per annum operating expense limit applicable to a client’s portfolio. The amendment therefore provides greater clarity regarding the components that are subject to the operating expense ceiling and those that may be charged in addition to it.

Co-Investment PMS

The PMS Regs 2026 have not modified the regulatory regime for co-investment PMS licences but have consolidated the relevant provisions in Chapter IV. Under the PMS Regs 2020, these requirements and exemptions are spread across different parts of the regulations.[37]

[The first author is a Partner while others are Associates in Corporate and M&A practice in Lakshmikumaran & Sridharan Attorneys]

[1] SEBI Press Release regarding key decisions taken in the SEBI Board Meeting dated 24.09.26 (‘Press Release’).

[2] PMS Regs 2026

[3] PMS Regs 2020

[4] Consultation Paper

[5] Draft Regulations

[6] Para 1.1 of the Press Release.

[7] Para 1.2.5. of the Press Release

[8] Para 2, Part B of the Consultation Paper.

[9] Regulation 24(3) of the PMS Regs 2020.

Under the Explanation to Regulation 24(3), ‘money market instruments’ include commercial paper, trade bills, treasury bills, certificates of deposit and usance bills.

[10] Para 2.1.1 of the Consultation Paper.

[11] Para 1.2.1.1 of the Press Release and Regulation 17(1)(b) of the PMS Regs 2026; compare Regulation 2(1)(dd) and Regulation 18(1)(b) of the Draft Regulations.

[12] Questions 9, 10 and 12 of the SEBI, Frequently Asked Questions on Portfolio Managers dated September 20, 2024: SEBI has clarified that ‘unlisted securities’ include units of alternative investment funds (AIFs), real estate investment trusts (REITs), infrastructure investment trusts (InvITs), debt securities, shares and warrants that are not listed on a recognised stock exchange in India, and that discretionary clients’ funds may not be invested in unlisted bonds.

[13] Regulation 24(4) of the PMS Regs 2020.

[14] Para 3.6.3 of the Master Circular for Portfolio Managers dated July 16, 2025 (‘PMS Master Circular’).

[15] Regulations 17(1)(d), 17(1)(f) and 2(1)(s) of the PMS Regs 2026.

[16] Paras 3.2.1, 3.2.2 and 3.2.4 of the PMS Master Circular.

[17] Para 3.2.3 of the PMS Master Circular.

[18] Regulation 24(7) of the PMS Regs 2020.

[19] Regulation 24(11) of the PMS Regs 2020.

[20] (Regulation 16(2) of the PMS Regs 2026.

[21] Regulation 7(2)(d) of the PMS Regs 2020.

[22] Regulation 7(2)(e) of the PMS Regs 2020 read with Chapter I (infrastructure / dealing-room condition) of the Master Circular for PMS dated July 16, 2025

[23] Regulations 24(5) and 24(6) of the PMS Regs 2020.

[24] Regulation 32 of the PMS Regs 2026.

[25] Regulation 30(2) of the PMS Regs 2026.

[26] Regulation 33(1) of the PMS Regs, 2026

[27] Para 1.2.1.5.1 of the Press Release and Regulations 30(2), 33(1) and 29(2)(f) of the PMS Regs 2026.

[28] Paras 6.1.4 and 6.1.5 of the PMS Master Circular.

[29] Paras 3.4.2 and 3.4.3 of the PMS Master Circular.

[30] Regulation 22(1) of the PMS Regs 2020.

[31] Regulation 22(3) of the PMS Regs 2020.

[32] Regulation 15(2)(a) of the PMS Regs 2026.

[33] Regulation 15(2)(b) of the PMS Regs 2026.

[34] Regulation 15(2)(h), 15(2)(i), 15(2)(f) of the PMS Regs 2026.

[35] Para 3 of SEBI circular dated February 13, 2020 on ‘Guidelines for Portfolio Managers’.

[36] Serial no. 8 of Annexure A5 of the Press Release.

[37] Regulation 2(1)(fa), Regulation 7(2)(d) (fourth proviso), Regulation 7(2)(e) (second proviso), Regulation 7(2)(g) (proviso), Regulation 9 (second proviso), Regulation 11(e) (proviso), Regulation 22(2) (third proviso block), Regulation 22(4) (second proviso to the performance proviso), Regulation 22(6) (proviso), Regulation 23(2) (second proviso), Regulation 24(1)(b) (proviso), Regulation 24(2)(a) (proviso), Regulation 24(4B), Regulation 26 (second proviso), Regulation 34(1) (second proviso), Schedule IV item 7 (proviso), Schedule V item 9 (proviso), Form A (Schedule I) of the PMS Regs 2020.