Sebi clears PMS, FPI, accredited investor reforms; broadens avenues

The Securities and Exchange Board of India (Sebi) approved far-reaching reforms relating to portfolio managers, foreign portfolio investors, accredited investors, market intermediaries and listed real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) in a meeting on Thursday.

The Sebi board approved sweeping changes across the Portfolio Management Services (PMS) framework, including a move to allow portfolio managers to invest in initial public offerings (IPOs) and primary-market debt issuances.

The regulator also approved wider foreign portfolio investor (FPI) participation in physically settled, non-agricultural commodity derivative contracts as well as changes to the accredited investor framework and settlement regulations. The decisions were taken at the Board meeting held on September 24.

PMS gets wider investment universe

The PMS overhaul is one of the most important decisions approved by SEBI on Thursday.

Portfolio managers will now have access to a wider investment universe including IPOs and primary-market debt issuances. This move is aimed at expanding the universe of investments available to portfolio managers.

Sebi has also approved a route to enable PMS managers to invest in mutual fund schemes while the framework provides greater flexibility around investments in overseas securities and specified unlisted debt, subject to conditions.

Under the framework, PMS managers can invest up to 10% of client's assets under management in investment-grade unlisted debt with the client's consent. A new mutual-fund-only route, called Portfolio Management Services for Investment in Mutual Funds (PRIM) will have a minimum investment ticket size of ₹25 lakh.

Vishal Trehan, Head India Sales and COO—broking and clearing, Aikyam Capital Group, said “SEBI’s overhaul of the PMS framework is a significant recalibration of India’s wealth-management architecture, expanding both the investment universe and the operating flexibility available to portfolio managers while simplifying the regulatory framework. The ability to participate in IPOs and primary debt issuances, invest up to 10% of client AUM in investment-grade unlisted debt with client consent, and access exchange-traded derivatives up to 1.25 times client AUM gives managers greater scope for diversification and portfolio construction."

"The introduction of PRIM is particularly significant, with a ₹25 lakh minimum ticket allowing PMS platforms to build portfolios through direct mutual fund plans, ETFs, index funds and SIFs. For PRIM-only applicants, the ₹2 crore net-worth threshold and 1% cap on fixed management fees provide a defined regulatory framework, while the 25% ceiling on affiliated AMC exposure addresses potential conflicts."

"The framework also opens the door to greater specialisation through Independent Fund Managers, while easing entry and compliance requirements — including making graduates eligible as Principal Officers and relaxing dealing-room requirements for managers below ₹100 crore AUM, a threshold that covers 48% of registered PMs. Perhaps equally important is the simplification of the rulebook itself: SEBI has reduced it from 70 pages to 33, cut the word count by about 42% from 19,486 to 11,308, and reduced provisos from 47 to four. Taken together, these changes point towards a more flexible, specialised and scalable PMS ecosystem, while retaining important safeguards around investor choice, conflicts and accountability," Trehan added.

The changes come after Sebi's consultation process around overhauling of PMS regulations, which had mooted the idea of widening the investment universe and easing some of PMS's operational requirements.

Jyoti Bhandari Chandra, founder and CEO, Lovak Capital, said "SEBI's move to introduce PRIM is a welcome development for the PMS industry. Prior to this, PMS players were only allowed to make direct equity and debt investments and had little choice to create a PMS portfolio that combines mutual funds, ETFs index funds and specialised investment funds into a professionally managed portfolio."

"The entry level of ₹25 lakh rupees ensures more serious investors get involved in this route without having to deal with more than one product. Equally important, the need for portfolio managers to have a minimum net worth and to keep the PRIMS activities distinct from other activities, adds an element of governance and accountability. When executed properly, this could significantly boost the participation of Indian investors in professionally managed wealth solutions," she added.

FPIs get access to physically settled commodity contracts

In another major approval, Sebi approved a framework for FPI participation in physically settled, non-agricultural commodity derivatives.

The move provides wider access to the commodities market for foreign investors and is aimed at boosting institutional participation, liquidity and market depth.

The framework contains safeguards around physical delivery. As per the proposal considered by Sebi, FPIs would have to square-off or roll over positions before the delivery period with arrangements to deal with positions that remain open. Sebi had put out a consultation paper around FPI participation in exchange-traded commodity derivatives in August. Its website currently lists that consultation paper, while the detailed implementation framework for Thursday's decision is awaited.

Accredited investor pool to expand

Sebi also approved changes aimed at widening the pool of accredited investors.

Under the new route individuals with securities-market assets of ₹5 crore and body corporates with such assets of ₹20 crore will be able to qualify as accredited investors along with the existing income and net-worth criteria.

The move is aimed at expanding the universe of accredited investors and encouraging participation in alternative investment funds (AIF).

Settlement rules, advertising code overhauled

The Board approved an overhaul of Sebi's settlement framework including a fast-track route for eligible settlements with amounts of up to ₹10 lakh.

The new rules offer a more formulaic approach to settlement amounts and provide more flexibility around settlement proceedings. SEBI has also increased the window for settlement application from 60 days to 90 days.

Separately, the regulator approved a common advertising code for market intermediaries. The framework, which will replace a range of entity-specific advertising requirements, also allows for celebrity endorsements at the brand or entity level, subject to conditions.

REITs, InvITs get overseas fundraising route

The Board also approved a proposal to enable REITs and publicly listed InvITs to issue depository receipts (DRs) in permissible overseas jurisdictions.

The move will provide these investment vehicles with another avenue to access overseas investors and raise capital.