Sebi Proposes Sweeping PMS Reforms: Minimum Entry Threshold Halved To Rs 25 Lakh

The Securities and Exchange Board of India (Sebi) has proposed an overhaul of the existing Portfolio Managers Regulations to ensure that regulations remain aligned with changing industry dynamics in a consultation paper released on July 23.

The market regulator has released the proposals amid a rapid expansion of the Portfolio Management Services (PMS) sector, as assets under management have doubled to Rs 42.61 lakh crore. Through the proposals, the regulator aims to broaden investment avenues, ease compliance, and strengthen investor protection. Sebi has urged people to submit suggestions on the proposals by August 13, 2026. Here’s a look at some of the key proposals Sebi has made to overhaul the existing PMS rules:

Minimum Entry Threshold Halved to Rs 25 Lakh Via MF-Only PMS

The market regulator has proposed the halving of the minimum investment threshold for PMS from Rs 50 lakh to Rs 25 lakh under a new, dedicated Mutual Fund-Only PMS framework. The new framework is designed for mass-affluent investors who want to seek professional wealth management solely for their mutual fund portfolios.

The MF-Only PMS category will only invest in direct schemes of mutual funds, exchange-traded funds, and specialised investment funds (SIFs) under a capped 2.5 per cent management fee.

For mass-affluent investors, the move lowers the entry barriers to seeking tailored portfolio advice while doing away with exit load provisions to prevent double-charging. The regulator highlighted the core objective behind the specialised category.

"This framework is introduced to enable portfolio managers intending to exclusively manage client investments only in direct plans of Mutual Fund schemes, including Exchange Traded Funds and Specialised Investment Funds," Sebi said.

Direct Investment Opportunities in Foreign Securities

Sebi has also proposed to expand the permissible investment avenues for PMS. The regulator has  proposed allowing portfolio managers to deploy client funds into overseas listed equities, debt instruments, and foreign mutual funds.

The overseas mechanism will operate within the Reserve Bank of India’s Liberalised Remittance Scheme ceiling of USD 2,50,000 per financial year; the framework will mandate positive consent from clients prior to execution.

For investors, this provides a regulated and professionally managed channel for global diversification without having to set up complex offshore accounts independently. Explaining the initiative to establish equal footing across institutional market participants, the regulator cited the necessity for parity.

"To bring the same under professional management and to establish regulatory parity between portfolio managers and other asset managers, it is proposed to allow portfolio managers to invest client funds in overseas securities," Sebi said.

Demat Account Portability

In order to address long-standing operational challenges faced by clients, the market regulator has proposed portability for client demat accounts and Know Your Customer records across managers and custodians.

Currently, investors migrating between portfolio managers or custodians are forced to open brand-new demat accounts and repeat onboarding verification processes. For investors, this change can potentially reduce administrative friction, save significant time, and reduce transfer costs when switching wealth managers. Emphasising the need to prevent redundant verification steps, the regulator highlighted the convenience of single-window onboarding.

"A PMS investor should undergo the onboarding and KYC process only once, with reliance on KYC registered with KRA to avoid duplication within the custodian ecosystem," Sebi said.

Allocations to Unlisted Debt and Derivatives

As a part of the overhauling of the PMS rules, portfolio managers will be permitted to allocate up to 10 per cent of client portfolios into unlisted debt securities alongside to-be-listed instruments. Additionally, managers will gain expanded derivative exposure limits up to 1.25 times the portfolio value for hedging and portfolio rebalancing strategies.

For high-net-worth investors, these options unlock risk management capabilities. Explaining the shift toward allowing unlisted debt exposure under discretionary management, the regulator noted evolving market demands.

"To align with evolving market dynamics and facilitate enhanced investment flexibility, it is proposed that a portfolio manager offering DPMS may be permitted to invest up to 10 per cent of its client's AUM in investment-grade unlisted debt securities," Sebi said.

Phasing Legacy Investment Limits

Sebi has proposed to enable paperless digital disclosure documents and relax dedicated dealing room mandates for smaller firms. At the same time, legacy clients who were grandfathered under the older Rs 25 lakh limits will be given 36 months to align with the standard Rs 50 lakh threshold.

For investors, this ensures more streamlined digital communication and standardises portfolio rules across the market over a three-year transition window.

"To ensure that all investments operate on an equitable and level playing field, it is proposed that all clients of portfolio managers shall comply with the minimum investment limit of Rs 50 lakh within thirty-six months," Sebi said.