SEBI clears new PMS rules, expands investment options for portfolio managers and FPIs

New Delhi: The Securities and Exchange Board of India (SEBI) on Thursday approved a new regulatory framework for portfolio managers that expands their investment avenues to include initial public offerings (IPOs), primary debt issuances and certain foreign securities, while also providing a route for investment in direct mutual fund plans.

The SEBI Board approved the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2026, which will replace the existing 2020 regulations. The new framework seeks to facilitate the growth of the portfolio management services (PMS) industry by easing compliance requirements, consolidating regulatory provisions and removing redundant requirements.

Under the new regulations, portfolio managers will be permitted to invest client funds in IPOs and primary market issuances in the debt segment, giving PMS providers greater flexibility in accessing primary markets.

The regulator has also permitted discretionary portfolio management services (DPMS) 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 the client's consent.

The framework further provides greater flexibility to portfolio managers in using exchange-traded derivatives. Exposure through such derivatives will be permitted up to 1.25 times the client's AUM, according to the new regulatory provisions.

In another decision, SEBI has widened the scope for foreign portfolio investors (FPIs) to participate in exchange-traded commodity derivatives, with the objective of deepening liquidity in the commodity derivatives market.

The SEBI Board approved FPI participation in non-agricultural index derivatives irrespective of whether the underlying contracts are cash-settled. FPIs will also be permitted to participate in non-cash-settled non-agricultural commodity derivatives.

However, FPIs participating in non-cash-settled non-agricultural commodity derivatives will have to exit their positions before any delivery obligation arises. As a safeguard, they will be required to close their positions before the beginning of the Tender Period, which starts three days before the expiry of a contract.

FPIs will also not be permitted to increase their positions from the T-3 day, ensuring that positions are not built up close to the point at which delivery obligations could arise.

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