SEBI Trims Portfolio Manager Rulebook by 53% and Expands PMS Investment Avenues

In a decisive bid to bolster ease of doing business and modernise high-net-worth wealth management, the Securities and Exchange Board of India (SEBI) has approved a comprehensive overhaul of its regulations governing Portfolio Management Services (PMS). The new framework, titled the SEBI (Portfolio Managers) Regulations, 2026, replaces the existing 2020 regulatory structure.

As part of the rationalisation drive, the market regulator has compressed the PMS rulebook from 70 pages down to 33 pages—marking a 53% reduction in volume. The total word count was reduced by roughly 42%, falling from 19,486 words to 11,308 words, while the number of statutory provisos was stripped down from 47 to just four. The pruning excises redundant clauses, transitional requirements, and overlapping provisions accumulated over years of regulatory circulars.

The overhaul comes against the backdrop of rapid growth in India’s wealth management sector. SEBI data shows that industry assets under management (AUM) expanded from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore by May 31, 2026, with the investor base rising to 2.19 lakh clients served across 515 registered portfolio managers.

Wider Asset Classes and Investment Windows

Under the revamped framework, SEBI has expanded the universe of permitted investments for portfolio managers to enhance returns and provide broader diversification:

• IPOs and Primary Debt: Portfolio managers can now invest directly in Initial Public Offerings (IPOs) and primary market issuances in the debt space on behalf of clients.
• Unlisted Debt Securities: Discretionary portfolio managers have been granted permission to allocate up to 10% of a client’s AUM into investment-grade, unlisted non-convertible debt securities, subject to explicit client consent.
• Foreign Securities: Portfolios can invest in specified overseas instruments, including listed equities, debt, foreign REITs, overseas exchange-traded funds (ETFs), and index funds, governed by the Reserve Bank of India’s Liberalised Remittance Scheme (LRS) and FEMA norms.
• Derivatives Flexibility: Derivative exposures have been relaxed, allowing exchange-traded derivatives positions of up to 1.25 times the client’s total AUM for hedging, rebalancing, and specified positioning.

Dedicated Route for Mutual Funds: PRIM

A notable structural addition is the Portfolio Managers Route for Investing in Mutual Fund units (PRIM). Designed to cater to affluent investors looking for discretionary mutual fund advisory and allocation, PRIM permits portfolio managers to deploy client capital exclusively across direct plans of mutual funds, including ETFs, index funds, and Specialised Investment Funds (SIFs).

Key parameters for the PRIM route:

• Lower Entry Threshold: While conventional PMS mandates a minimum ticket size of ₹50 lakh, PRIM sets the entry barrier at ₹25 lakh.
• Fee Structure: Fixed management fees for PRIM have been capped at 1% of client AUM, though managers remain eligible to levy performance-based fees.
• Net Worth Criteria: Standalone entities seeking registration exclusively under PRIM require a net worth of ₹2 crore, compared to the higher capital thresholds applicable to broad-based portfolio managers.

Operational and Compliance Relief

To streamline operations and encourage independent talent, the regulator introduced the concept of Independent Fund Managers (IFMs). IFMs can run bespoke investment strategies under the infrastructure of a registered portfolio manager, though the registered entity maintains full regulatory liability, and clients receive a mandatory exit option if an IFM departs.

Further compliance relaxations include:

• Dealing Room Exemptions: Portfolio managers managing AUM under ₹100 crore are exempt from maintaining dedicated physical dealing rooms, a move SEBI estimates will benefit approximately 48% of active market participants.
• Personnel Qualifications: The criteria for appointment as a Principal Officer have been eased to make graduates eligible, widening the administrative talent pool.
• Standardised Contracts: SEBI will issue a standardised Investment Management Agreement (IMA) embedding demat and trading account operational authority directly, ending repetitive documentation layers.

The rationalised framework modernises India’s PMS landscape by lowering compliance overheads for boutique asset managers while opening up sophisticated global and primary market opportunities for domestic high-net-worth investors.

Tags: SEBI Portfolio Management Services PRIM Capital Markets Wealth Management Mutual Funds