SEBI Proposes Overhaul of Portfolio Management Service Regulations

The Securities and Exchange Board of India issued a consultation paper on July 24, 2026, proposing a comprehensive overhaul of the regulatory framework for portfolio management services (PMS). The initiative follows a review of the 2020 Portfolio Managers Regulations and responds to industry growth, with assets under management reaching Rs 42.61 lakh crore by May 31, 2026.

Central to the proposal is the creation of a mutual fund-only portfolio management service (MF-PMS). This framework would allow managers to operate exclusively through exchange-traded funds, specialized investment funds, and direct plans of mutual fund schemes. To lower entry barriers, the regulator proposes reducing the minimum client investment threshold from Rs 50 lakh to Rs 25 lakh and cutting the minimum net worth requirement for applicants from Rs 5 crore to Rs 2 crore. Fixed management fees under this framework would be capped at 2.5% of the client's assets under management.

Beyond the MF-PMS, the reforms aim to expand investment flexibility by permitting portfolio managers to invest client funds in overseas equity shares, debt securities, and regulated foreign mutual funds or REITs, provided there is explicit client consent and compliance with the Foreign Exchange Management Act. Other proposed changes include allowing limited investments in investment-grade unlisted debt securities and increasing flexibility for exchange-traded derivatives. The public has until August 13, 2026, to submit comments on these proposed amendments.