New Delhi: Markets regulator Sebi on Thursday proposed expanding the investment avenues available to portfolio managers by allowing them to invest in "to-be-listed" securities and overseas listed equity and debt.
The move is aimed at broadening the investment universe and providing investors access to wider market opportunities.
Further, the regulator has proposed allowing portfolio managers offering discretionary portfolio management services to invest up to 10 per cent of a client's assets under management (AUM) in investment-grade unlisted debt securities.
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At present, only non-discretionary portfolio management services and advisory services are permitted to invest up to 25 per cent of client AUM in unlisted securities.
The proposals are part of a comprehensive review of the Sebi (Portfolio Managers) Regulations, 2020, amid rapid growth in the industry.
According to Sebi, the PMS industry's AUM has increased to Rs 42.61 lakh crore as of May 31, 2026, from Rs 18.07 lakh crore in April 2019. The number of clients has risen to 2.19 lakh from 1.5 lakh during the period, while the number of portfolio managers has more than doubled to 515 from 226 in 2020.
"Considering the increasing sophistication of investors, growing demand for more personalised solutions and diverse investment portfolios, a need was felt to review the PM Regulations," Sebi said in a consultation paper.
To widen investment opportunities, Sebi has proposed permitting investments in "to-be-listed" securities, enabling investors to gain exposure to a broader range of market opportunities.
It has also proposed allowing portfolio managers to invest client funds in overseas listed equity shares, listed debt securities and units of overseas mutual funds or unit trusts regulated by foreign regulators, bringing them at par with mutual funds, alternative investment funds and IFSC-based portfolio managers.
Also, Sebi suggested a new category of portfolio managers restricted to investing in exchange-traded funds (ETFs), mutual fund schemes and Specialised Investment Funds (SIFs), aimed at widening access to portfolio management services through a lower minimum investment requirement.
For this category, Sebi has proposed reducing the minimum investment requirement to Rs 25 lakh from Rs 50 lakh and lowering the minimum net worth requirement for portfolio managers to Rs 2 crore from Rs 5 crore.
It has also proposed allowing such portfolio managers to take derivatives exposure of up to 1.25 times clients' assets to broaden the range of investment strategies available.
The regulator has also proposed requiring portfolio managers to maintain dedicated and segregated dealing rooms for portfolio management activities to ensure independence from other business operations.
However, it has suggested exempting firms managing fewer than 10 clients or having AUM below Rs 100 crore, subject to maintaining adequate audit trails and internal controls.
To improve transparency, Sebi has proposed clarifying that the annual cap of 0.50 per cent on operating expenses will exclude statutory levies. It has also proposed extending the timeline for submission of corporate governance reports to 60 calendar days from the existing 30 days.
As part of governance measures, Sebi has proposed making it mandatory for compliance officers of portfolio managers to obtain the NISM Series-III-C Securities Intermediaries Compliance (Fund) certification.
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In addition, the regulator has sought public comments on allowing demat account portability for portfolio management clients to enable seamless migration between portfolio managers without opening fresh demat accounts or undergoing repeated KYC procedures.
Sebi has also proposed operational relaxation from obtaining power of attorney (PoA) from clients, while seeking suggestions on safeguards to protect investors.
Further, the regulator has sought comments on permitting independent fund managers to operate under the umbrella of a registered portfolio manager, with the registered entity retaining regulatory responsibility, and on allowing eligible fund managers to manage overseas funds investing in foreign securities.
It has also proposed requiring all portfolio management clients, except those under Mutual Fund Portfolio Management Services (MF-PMS), to comply with the revised minimum investment threshold of Rs 50 lakh within 36 months of the new regulations coming into force.
Additionally, portfolio managers have been proposed to comply with prudential and investment limits currently covered under grandfathering provisions within 12 months of the commencement of the new regulations.
The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals till August 13.
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