SEBI Rewrites PMS Rulebook, Opens IPOs and Overseas Assets

The Securities and Exchange Board of India (SEBI) has approved a complete rewrite of the rules governing portfolio management services (PMS), widening what portfolio managers can buy for clients and cutting the compliance load on smaller firms. The decision, taken at the regulator’s board meeting on 24 September, was part of a wider package that also overhauls settlement proceedings, introduces a common advertising code for market intermediaries and opens India’s commodity derivatives market further to foreign portfolio investors (FPIs).

A broader menu for portfolio managers

Under the new PMS Regulations, 2026, portfolio managers will be able to invest client money in initial public offerings and primary debt issues, according to reports by Outlook Money and Business Today. With client consent, up to 10% of client assets can be placed in unlisted investment-grade debt. Exposure to exchange-traded derivatives will be permitted up to 1.25 times client assets.

The most significant change for wealthy investors is access to overseas markets. Portfolio managers will be allowed to invest in foreign securities within limits set under FEMA and by the Reserve Bank of India, covering listed equity and debt, REITs, overseas mutual funds, ETFs, index funds and foreign government bonds.

SEBI has also created a new route for portfolio managers that invest only in mutual fund units. The minimum ticket size under this route is ₹25 lakh, and new applicants will need a net worth of ₹2 crore. The management fee is capped at 1%, performance fees are allowed, and no more than 25% of a portfolio can sit in schemes of an affiliated fund house.

Independent fund managers will be able to run portfolios under the supervision of a registered portfolio manager, a structure that could bring more boutique talent into the regulated space.

Lighter compliance for smaller firms

Alongside the new freedoms, SEBI has eased several operational requirements. Graduates will now qualify to serve as principal officers. Portfolio managers with assets under management below ₹100 crore, who make up 48% of registered PMS firms, will no longer need to maintain a dedicated dealing room. Client agreements will follow a standard format.

The regulator also pared back the rulebook itself: the regulations have been cut from 70 pages to 33, with 42% fewer words and the number of provisos down from 47 to four.

Market participants welcomed the direction. Dharmendra Maurya of Rupeeflo told Outlook Money that the rules let managers compete on asset allocation “rather than only on Indian stock-picking”.

Settlements move to a formula

The board approved new Settlement Regulations, 2026, under which settlement amounts will be calculated using a formula linked to the minimum penalty, while wrongful gains will be disgorged separately. The window to apply for settlement after a show-cause notice has been extended from 60 to 90 days, and a fast-track route will apply to cases up to ₹10 lakh. TaxGuru reported that interest on disgorged amounts will be charged at 9% a year.

SEBI also approved a fourth settlement scheme for entities involved in illiquid stock-option trades on BSE between April 2014 and September 2015. The settlement amount starts at ₹1.44 lakh for one to five contracts and rises to ₹7.20 lakh plus ₹14,400 per contract for those with more than 50.

One advertising code, and FPIs in commodities

A common advertisement code will now apply to stockbrokers, depository participants, investment advisers, research analysts, online bond platforms, portfolio managers and mutual funds. Celebrities will be allowed to endorse at the brand level with safeguards. Most advertisements will not need prior approval but must be reported within three working days.

FPIs will be permitted to trade non-agricultural commodity index derivatives and non-cash-settled non-agricultural commodity contracts, provided they exit before delivery and do not build fresh positions in the three days before expiry. Vault managers’ scope has been widened to cover bullion ETFs and bullion derivatives, with their minimum net worth raised from ₹50 crore to ₹75 crore.

For REITs and InvITs, the board allowed depository receipts to be issued and listed at the International Financial Services Centre and changed the approval threshold for key decisions from 75% of outstanding units to 75% of votes cast. SEBI also introduced a new route to accredited-investor status based on securities-market exposure of ₹5 crore for individuals and ₹20 crore for corporates, and eased listing requirements for first-time issuers of non-convertible debentures.

Why it matters for investors

The PMS changes arrive as India’s wealth-management industry grows rapidly and affluent investors look beyond domestic equities. Allowing overseas exposure through a regulated domestic product gives portfolio managers a way to offer diversification without clients having to open offshore accounts, although the overall limits under the RBI’s Liberalised Remittance Scheme and FEMA framework will still apply.

Access to IPOs and unlisted debt should help managers build differentiated portfolios, while the mutual-fund-only route may lower entry barriers for new firms. For listed wealth and asset managers, the reforms could expand product shelves and fee pools. The settlement overhaul, meanwhile, should make enforcement outcomes more predictable, and the FPI commodity access adds depth to a segment that has long lacked institutional participation.

What happens next

The new regulations will take effect once they are notified in the Gazette, and SEBI is expected to issue detailed circulars on operational matters, including overseas investment limits and disclosure formats. Portfolio managers will need to update client agreements and internal controls. Industry bodies are likely to seek clarity on how overseas limits will be allocated across firms, a question that has shaped similar access for mutual funds in the past.