Mumbai, Sep. 24 : The Securities and Exchange Board of India (SEBI) has approved a new regulatory framework for portfolio managers, expanding the investment avenues available under portfolio management services (PMS) to include IPOs, foreign securities, primary debt issuances and direct mutual fund plans.
The SEBI Board approved the SEBI (Portfolio Managers) Regulations, 2026, which will replace the existing 2020 regulations. The new framework seeks to streamline compliance, consolidate regulatory provisions and remove redundant requirements while supporting the growth of the PMS industry.
Under the revised rules, portfolio managers will be permitted to invest client funds in initial public offerings (IPOs) and primary issuances in the debt market.
Discretionary portfolio management services (DPMS) will also be allowed to invest up to 10 per cent of a client’s assets under management (AUM) in investment-grade, non-convertible and unlisted debt securities, subject to client consent.
The framework provides greater flexibility for investments through exchange-traded derivatives, with exposure permitted up to 1.25 times the client’s AUM.
Foreign securities
Portfolio managers offering both discretionary and non-discretionary services will be permitted to invest in foreign securities, subject to applicable regulations.
Eligible instruments will include listed equity and debt securities, REITs, overseas mutual funds, ETFs, index funds and foreign government securities. Such investments will remain subject to the provisions of the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India’s Liberalised Remittance Scheme.
New route for direct mutual fund investmentsSEBI has introduced the Portfolio Managers Route for Investing in Mutual Fund Units (PRIM), allowing portfolio managers to invest client funds in direct plans of mutual funds, including ETFs, index funds and specialised investment funds offered by Indian asset management companies.
Existing portfolio managers can offer PRIM through a separate investment approach, while entities seeking to operate exclusively under the framework can obtain a separate portfolio manager registration.
The minimum investment threshold under PRIM has been set at Rs 25 lakh, while portfolio managers operating under the framework will be required to maintain a minimum net worth of Rs 2 crore.
The Principal Officer must have a graduation degree along with a CFA or CA qualification, two years of securities market experience and the prescribed NISM certification.
SEBI has also capped investments in schemes of affiliated, group or associate asset management companies at 25 per cent under the PRIM framework.
Fixed management fees will be capped at 1 per cent of client AUM, while performance-linked fee structures will also be allowed. SEBI has additionally provided for a waiver of exit-load provisions for PRIM investments.
Portfolio managers that also operate as mutual fund distributors will have to segregate their MFD and PRIM activities and clients, except in the case of accredited investors.
Independent Fund Managers
The new regulations also introduce Independent Fund Managers (IFMs), who will be able to manage and operate client portfolios in association with a registered portfolio manager.
The registered portfolio manager will retain full responsibility and liability for activities undertaken by an IFM. IFMs will be required to meet the qualification, experience and certification requirements applicable to a Principal Officer.
Fees will be paid directly to the registered portfolio manager, while orders generated by IFMs will have to be routed through the portfolio manager’s infrastructure.
A portfolio manager can associate with multiple IFMs, but an IFM can operate with only one portfolio manager at a time.
Clients will have a mandatory exit option if their associated IFM leaves or is terminated. The Association of Portfolio Managers in India (APMI) will maintain and update a central database of active IFMs.
The new framework also allows eligible fund managers to manage and advise eligible investment funds investing in overseas securities. For eligible investment funds investing in Indian securities, the applicable investment limit will continue to be aligned with the prevailing foreign portfolio investor framework.
