SEBI has in its Board meeting dated 24th September 2025 taken some decisions, regarding Portfolio Managers Regulations 2020 by introducing a new 2026 regulation. Some of the proposed measures are:
1. Overall regulatory approach
The proposed framework represents a shift from a primarily compliance-oriented PMS regime towards a framework that seeks to combine industry development, investor choice, regulatory simplification and operational flexibility.
The four stated objectives are significant:
- Development of the PMS industry
- Ease of compliance
- Consolidation and simplification of regulations
- Removal of redundant provisions
Thus, the proposed regulations appear intended not merely as a technical replacement of the 2020 Regulations, but as a structural overhaul of the PMS regulatory framework.
2. Developmental measures
A. Greater investment flexibility
One of the most significant changes is the proposed expansion of the permissible investment universe.
Portfolio Managers would be permitted to invest in:
- IPOs and primary-market debt issuances;
- Investment-grade unlisted non-convertible debt securities, subject to the proposed 10% AUM limit and client consent;
- Exchange-traded derivatives up to 1.25 times the client's AUM;
- Specified foreign securities;
- Direct plans of mutual funds, ETFs, Index Funds and SIFs through the proposed PRIM route.
This represents a substantial move towards giving PMS providers greater flexibility in portfolio construction, while retaining specified prudential safeguards.
For clients, the practical implication is potentially greater diversification and access to investment opportunities that were previously outside the conventional PMS framework.
B. Foreign securities
The proposal to permit investment in specified foreign securities under both DPMS and NDPMS is particularly significant.
The permissible instruments would include listed equity, debt, REITs, overseas mutual funds, ETFs, Index Funds and foreign government debt, subject to FEMA and the RBI's LRS framework.
From a compliance perspective, this creates an important intersection between:
- SEBI regulations;
- FEMA, 1999;
- RBI regulations/circulars; and
- the LRS framework.
Therefore, while the proposal provides investment flexibility, Portfolio Managers would need to establish appropriate cross-regulatory compliance controls, particularly regarding remittance limits, eligible instruments, reporting and documentation.
3. PRIM – Portfolio Managers Route for Investing in Mutual Funds
The proposed PRIM framework is one of the more consequential innovations.
It would enable Portfolio Managers to invest client funds in direct plans of mutual funds, including ETFs, Index Funds and SIFs.
The proposed framework appears to create two routes:
Existing Portfolio Managers
An existing Portfolio Manager could offer PRIM as a separate investment approach, subject to a minimum ticket size of ₹25 lakh.
New applicants
An applicant intending to operate exclusively within the PRIM framework could obtain a separate registration, subject to specified conditions including:
- Minimum ticket size: ₹25 lakh
- Minimum net worth: ₹2 crore
- Relaxed qualification/experience requirements
- Simplified NISM certification for the Principal Officer
- Waiver of exit-load provisions
- 25% prudential cap on schemes of affiliated/group/associate AMCs
- Management fee capped at 1% of client AUM, with performance-based fees also permitted
- Segregation between MFD and PRIM activities/clients, except for accredited investors
Professional significance
This effectively creates a specialised regulatory channel for professional management of mutual-fund portfolios.
The 25% related-party AMC exposure restriction is particularly relevant from an investor-protection perspective because it addresses the potential conflict arising when a Portfolio Manager and AMC have common ownership or association.
Similarly, segregation between MFD and PRIM activities is important because it seeks to prevent conflicts between distribution remuneration and portfolio-management decisions.
4. Eligible Fund Managers and Independent Fund Managers
The proposed introduction of Independent Fund Managers (IFMs) appears to be another major structural change.
An IFM would operate in association with a registered Portfolio Manager, but the registered Portfolio Manager would retain full responsibility and liability for the IFM's activities.
The safeguards proposed include:
- IFM qualifications equivalent to those of a Principal Officer;
- fees being paid directly to the registered Portfolio Manager;
- IFM-generated orders passing through the PM's infrastructure;
- a PM being able to associate with multiple IFMs;
- an IFM being restricted to one PM at a time;
- mandatory client exit option upon departure/termination of an IFM; and
- maintenance of a central database of active IFMs by APMI.
Professional assessment
The IFM model could potentially allow PMS businesses to develop a multi-manager or specialist-manager model without requiring every individual manager to independently establish a full-fledged PMS infrastructure.
However, the allocation of responsibility is crucial. Since the registered Portfolio Manager retains ultimate responsibility and liability, its due diligence, supervision, monitoring, risk management and contractual arrangements with IFMs will become particularly important.
For a Company Secretary or compliance professional, this is likely to create additional areas requiring attention in:
- governance frameworks;
- agreements with IFMs;
- conflict-of-interest policies;
- delegation arrangements;
- investor disclosures;
- board/management oversight; and
- compliance monitoring.
5. Ease of compliance
The proposed framework also attempts to reduce operational compliance burdens.
A. Principal Officer qualification
The relaxation permitting a graduate to act as Principal Officer represents a significant reduction in the entry barrier.
However, this relaxation does not necessarily reduce the importance of the Principal Officer's actual competence and regulatory responsibilities.
For PMS entities, the focus may therefore shift from formal qualification requirements towards demonstrable experience, certification and internal competency.
B. Dealing-room requirement
The proposed relaxation for Portfolio Managers with AUM below ₹100 crore is particularly relevant for smaller PMS entities.
The proposal indicates that approximately 48% of registered Portfolio Managers as of the stated date would fall within this category.
This is therefore not merely a marginal relaxation; it could have a meaningful impact on the operating model of a substantial proportion of smaller PMS businesses.
C. Standardised Investment Management Agreement
The introduction of a standardised IMA could significantly improve consistency and transparency.
Embedding authority for operating demat and trading accounts within the standard IMA could also reduce documentation and procedural duplication.
However, the continuation of the separate POA requirement for bank accounts, as mandated by RBI, means that the simplification is not absolute.
This will require PMS entities to clearly distinguish between:
- securities/demat/trading authority; and
- banking/payment authority.
D. Harmonisation of reporting timelines
Harmonisation of timelines for material and non-material reporting should reduce the possibility of fragmented compliance calendars.
For PMS compliance teams, this could facilitate:
- centralised compliance calendars;
- automated reminders;
- standard operating procedures;
- better tracking of regulatory submissions; and
- reduced risk of inadvertent delays.
E. Digital disclosure documents
The proposed transition towards digital communication and disclosure documents is consistent with the broader movement towards paperless regulatory compliance.
This should reduce administrative costs while also making it easier to maintain version control and evidence of disclosures.
6. Key implications for Portfolio Managers
From a practical compliance perspective, the proposed framework can be viewed through five broad changes:
| Area | Proposed direction | Likely compliance implication |
|---|---|---|
| Investment universe | Wider | More sophisticated investment controls required |
| Foreign investments | Permitted | FEMA/RBI compliance becomes important |
| Mutual funds | PRIM framework | New product, fee and conflict controls |
| Fund managers | IFM model | Enhanced delegation and supervision framework |
| Compliance | Simplification | Reduced procedural burden and standardisation |
The important point is that ease of compliance does not necessarily mean reduced regulatory responsibility. In several areas, the proposed flexibility appears to be accompanied by a greater need for internal controls and investor-protection mechanisms.
7. Areas requiring particular attention from a Company Secretary
From a PCS/secretarial-compliance perspective, I would particularly flag the following areas for detailed examination once the final regulations and accompanying circulars are issued:
1. Governance and delegation
The IFM structure will require careful examination of the respective responsibilities of:
Board → Portfolio Manager → Principal Officer → IFM → Investment decision-maker
The final regulations should be examined for responsibility, accountability and reporting requirements.
2. Related-party/conflict management
The PRIM restrictions concerning affiliated/group/associate AMCs will require appropriate conflict-of-interest policies and monitoring mechanisms.
3. Client documentation
The standardised IMA could substantially change the documentation process. Existing PMS agreements would need to be reviewed against the prescribed format.
4. Foreign investment compliance
PMS entities entering foreign securities would need an integrated SEBI–FEMA–RBI compliance framework, rather than treating the investment solely as a SEBI matter.
5. Derivatives exposure
The proposed 1.25-times AUM limit introduces greater flexibility but simultaneously creates a need for robust exposure monitoring, risk controls and client-level reporting.
6. Regulatory reporting
Harmonisation of reporting timelines should eventually make compliance easier, but PMS entities will need to redesign their compliance calendars once the precise reporting requirements are notified.
8. Overall professional interpretation
The proposal appears to pursue a dual objective: making the PMS industry more commercially flexible while simplifying its regulatory architecture.
The most consequential proposals are not merely the procedural relaxations. They are the introduction of:
- foreign-security investment capability;
- PRIM for mutual-fund investments;
- greater derivative flexibility;
- investment in specified unlisted debt;
- Independent Fund Managers; and
- standardised client documentation.
Taken together, these provisions could broaden the functional scope of PMS considerably.
At the same time, the proposed framework seems to follow an important regulatory principle: greater investment freedom is being accompanied by specific prudential limits, disclosure requirements, conflict-management mechanisms and continuing responsibility of the registered Portfolio Manager.
