SEBI approves overhaul of portfolio manager rules, new settlement framework
SEBI said the changes are aimed at developing the portfolio management services industry. They are also intended to simplify regulations and ease compliance. Under the new framework, portfolio managers will be allowed to invest in initial public offerings (IPOs) and primary market debt issues. They will also have greater flexibility to invest in exchange-traded derivatives, with investments permitted up to 1.25 times the client's assets under management (AUM).
Portfolio managers will be allowed to invest up to 10% of client AUM in investment-grade, non-convertible, unlisted debt securities under discretionary portfolio management services. Client consent will be required for such investments.
The new rules will also allow investment in specified foreign securities. These include listed equities, debt, REITs, overseas mutual funds, exchange-traded funds and index funds. Such investments will remain subject to applicable foreign exchange rules and the Reserve Bank of India's Liberalised Remittance Scheme.
SEBI also approved the introduction of the Portfolio Managers Route for Investing in Mutual Fund Units (PRIM). The route will allow portfolio managers to invest clients' funds in direct plans of mutual funds, including exchange-traded funds, index funds and specialised investment funds of Indian asset management companies.
An existing portfolio manager will be able to offer PRIM through a separate investment approach with a minimum ticket size of Rs 25 lakh. Applicants seeking a separate registration to operate exclusively under PRIM will require a net worth of Rs 2 crore. The fixed management fee will be capped at 1% of client AUM, while performance-based fees will also be permitted.
The framework will also introduce Independent Fund Managers (IFMs), who can manage and operate client portfolios in association with a registered portfolio manager. The registered portfolio manager will retain full responsibility and liability for the activities of the IFM. Clients will have a mandatory exit option if an IFM leaves or is terminated.
SEBI also approved several compliance-related changes. Graduates will be eligible to function as principal officers of portfolio managers, while the dealing room requirement will be relaxed for portfolio managers with AUM below Rs 100 crore. SEBI said this would cover 48% of registered portfolio managers as of the date of the decision.
The regulator will introduce a standardised Investment Management Agreement and embed authority to operate demat and trading accounts within the agreement. The power of attorney requirement for bank accounts mandated by the RBI will continue.
SEBI said the review reduced the size of the portfolio manager regulations from 70 pages to 33 pages, a 53% reduction. The word count was reduced by about 42% to 11,308 words from 19,486 words, while the number of provisos was reduced from 47 to four.
Separately, the board approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, which will replace the SEBI (Settlement Proceedings) Regulations, 2018. The new regulations will come into force on the day succeeding the 30th day from the date of their notification.
Under the new framework, settlement terms will comprise a settlement amount, disgorgement of wrongful gains where applicable, and remedial and regulatory terms. SEBI has also approved a new formula for calculating the settlement amount, incorporating factors including the minimum penalty prescribed under securities laws, the stage of proceedings, regulatory action, gravity of the default, aggravating factors and mitigating factors.
Wrongful gains, loss avoided or loss caused to investors will not be included in the base amount. Where quantified, such amounts will be disgorged separately.
The revised framework will also provide for a settlement notice before the issuance of a show cause notice in eligible cases. Such a notice will give applicants 60 days to file a settlement application. The settlement notice will not be issued where initiation of prosecution or an interim order is contemplated.
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