SEBI Overhauls PMS Regulations to Permit IPO Bets, Unlisted Debt and ₹25 Lakh Mutual Fund Portfolios

The Securities and Exchange Board of India (SEBI) has cleared a comprehensive overhaul of the regulatory framework governing Portfolio Management Services (PMS), replacing the SEBI (Portfolio Managers) Regulations, 2020 with the SEBI (Portfolio Managers) Regulations, 2026. The revamped regime introduces significant operational flexibility for portfolio managers, widens the investable universe for high-net-worth investors, and establishes an accessible mutual fund-based PMS route.

The sweeping reforms follow an exponential expansion in India’s PMS sector, where assets under management (AUM) surged from ₹18.07 lakh crore in April 2019 to ₹42.61 lakh crore by May 2026, while the registered client base crossed 2.19 lakh.

Widening the PMS Asset Universe

Under the previous framework, portfolio managers were constrained by restrictive asset definitions that limited their participation in primary offerings and select fixed-income securities. The new 2026 regulations relax these boundaries significantly:

• IPO and Primary Debt Access: Portfolio managers are now explicitly permitted to subscribe to initial public offerings (IPOs) and primary debt market issuances directly on behalf of client accounts.
• Unlisted Debt Allocation: Managers operating Discretionary Portfolio Management Services (DPMS) can allocate up to 10% of a client’s AUM to investment-grade, non-convertible unlisted debt securities, provided explicit prior consent is obtained from the client.
• Overseas Securities: Discretionary and non-discretionary portfolio managers can invest in foreign listed equities, debt, global real estate investment trusts (REITs), overseas mutual funds, exchange-traded funds (ETFs), index funds, and foreign government securities, in compliance with the Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines.
• Derivative Exposures: Portfolio managers gain expanded room to utilise exchange-traded derivatives, with permissible exposure thresholds reaching up to 1.25 times the client’s AUM.

Launch of the ₹25 Lakh PRIM Route

One of the cornerstone additions is the introduction of the Portfolio Managers Route for Investing in Mutual Fund units (PRIM), commonly termed MF-PMS.

While conventional PMS continues to mandate a minimum investment threshold of ₹50 lakh, the PRIM avenue lowers the barrier to entry to ₹25 lakh. Key parameters of the PRIM route include:

• Direct Plans Only: PRIM strategies can invest exclusively in direct plans of mutual fund schemes, ETFs, index funds, and specialised investment funds (SIFs).
• Fee Structure and Limits: Fixed management fees for PRIM are capped at 1% of client AUM, though performance-linked fee models remain permissible.
• Affiliate Investment Caps: Exposure to schemes managed by affiliated, associate, or group asset management companies (AMCs) is capped at 25% of the client's portfolio.
• Structural Segregation: Entities offering both mutual fund distribution (MFD) and PRIM services are required to maintain strict segregation of activities and client accounts to mitigate conflicts of interest.
• Lower Capital Requirements: New applicants aiming to operate exclusively via the PRIM framework need a minimum net worth of ₹2 crore, down from the standard ₹5 crore net worth required for general PMS providers.

Independent Fund Managers and Compliance Relief

To spur talent and operational ease, SEBI has introduced a framework enabling Independent Fund Managers (IFMs) to run client portfolios under the infrastructure and oversight of registered portfolio managers, who retain regulatory liability.

The market regulator has simultaneously pared down the compliance burden for smaller operators. Dedicated dealing-room mandates have been relaxed for firms managing under ₹100 crore in AUM, a threshold covering approximately 48% of registered PMS players. Furthermore, statutory levies will no longer be counted against the annual 0.5% operating-expense limit, modernising the operational cost architecture across the wealth management industry.

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