The Securities and Exchange Board of India (SEBI) Board has approved the SEBI (Portfolio Managers) Regulations, 2026, replacing the existing 2020 framework. The new regulations seek to simplify compliance, consolidate regulatory provisions and expand investment avenues available to portfolio managers.
Under the new framework, portfolio managers will be permitted to invest client funds in initial public offerings (IPOs) and primary market issuances in the debt segment. Portfolio managers offering discretionary and non-discretionary services will also be permitted to invest in specified foreign securities, including listed equity and debt, REITs, overseas mutual funds, ETFs, index funds and foreign government debt.
Investment Flexibility for Portfolio Managers
The new SEBI framework also provides specific flexibility for discretionary portfolio management services (DPMS). Portfolio managers will be permitted to invest up to 10% of a client’s assets under management (AUM) in investment-grade, non-convertible and unlisted debt securities, subject to obtaining the client’s consent.
The regulations further allow greater flexibility in the use of exchange-traded derivatives, with exposure permitted up to 1.25 times the client’s AUM under the new framework.
SEBI Widens FPI Access to Commodity Derivatives
In a separate decision, SEBI has approved wider participation by foreign portfolio investors (FPIs) in exchange-traded commodity derivatives. FPIs will be permitted to participate in non-agricultural index derivatives irrespective of whether the underlying contracts are cash-settled. They will also be allowed to participate in non-cash-settled non-agricultural commodity derivatives.
The expanded access comes with safeguards to prevent FPIs from entering delivery obligations. FPIs holding positions in non-cash-settled non-agricultural commodity derivatives will have to exit before the delivery obligation arises. They must close their positions before the Tender Period, which begins three days before contract expiry, and will not be permitted to increase their positions from the T-3 day.
Before being enabled to trade, FPIs will also be required to enter into an agreement with their trading member or trading-cum-clearing member covering the handling of their positions. The framework provides for arrangements to square off positions or transfer residual open positions to the member under specified conditions.
SEBI Framework Targets Portfolio Management and Market Participation
The SEBI decisions expand the investment universe for portfolio managers while simplifying the regulatory framework governing PMS activities. The changes to FPI participation also widen access to India’s non-agricultural commodity derivatives market, with safeguards around positions approaching delivery obligations.
