What Changed In The SEBI PMS Review 2026

On 23 July 2026, SEBI published a consultation paper titled Comprehensive Review of SEBI (Portfolio Managers) Regulations, 2020. SEBI invited public comments by 13 August 2026 through its online public-comment form. The paper proposes a draft Portfolio Managers Regulations, 2026 framework and asks market participants for feedback on investment flexibility, MF-only PMS, ease-of-compliance measures, dealing-room requirements, demat portability, POA relaxation and independent fund-manager models.

This is a consultation paper, not the final law. That distinction matters. Founders should not market a feature as “SEBI-approved” merely because it appears in the consultation. The practical task is to understand the direction of travel, identify which product flows may be affected, prepare evidence-backed comments and avoid building regulated features on assumptions that may change when final regulations are notified.

SEBI’s stated background is the growth of India’s PMS market. The consultation notes PMS AUM of INR 42.61 lakh crore as on 31 May 2026, compared with INR 18.07 lakh crore in April 2019. It also notes 2.19 lakh clients as on 31 May 2026 and 515 portfolio managers, compared with 226 portfolio managers when the 2020 regulations were revamped. That scale explains why SEBI is reviewing both investor-protection controls and ease-of-doing-business measures.

Why Wealthtech And Advisory Founders Should Care

Many startup teams read PMS regulations only when they intend to become a registered portfolio manager. That is too late. A founder may be building a dashboard, allocation engine, execution workflow, model-portfolio tool, client-reporting layer, KYC journey, PMS marketplace, family-office interface or compliance module that sits next to a regulated portfolio manager. The regulation may still shape the product, even if the startup itself does not hold PMS registration.

The consultation touches the entire operating chain: who the product can serve, what instruments can be included, how consent is collected, how offshore investments are monitored, how fees are displayed, how records are retained, how orders are generated and where execution infrastructure sits. A product roadmap that ignores these points can create expensive rework after launch.

For fundraising, this is also a diligence issue. Investors in wealthtech and fintech companies increasingly ask whether the product accidentally performs investment advice, portfolio management, distribution, research, execution or custody without the correct permissions. A good founder response is not “we are only a tech platform”. A better response is a clear activity map showing what the company does, what a regulated partner does, what licences exist and where client consent sits.

Proposal Map: What SEBI Has Put On The Table

MF-PMS: The Proposal Most Wealthtech Founders Will Watch Closely

The proposed MF-only PMS framework is the most visible change for founders building around mutual fund portfolios. SEBI’s consultation describes a dedicated category for portfolio managers that exclusively manage client investments in direct plans of mutual fund schemes, including ETFs and specialised investment funds. The proposed minimum client investment is INR 25 lakh instead of the general PMS threshold of INR 50 lakh.

The idea is attractive because many investors want professional allocation without a direct-stock PMS product. But it also creates hard design questions. If a platform recommends mutual fund combinations, rebalances them, collects fees and presents itself as personalised portfolio management, the team must examine whether it is distribution, investment advice, research, PMS, execution support or a regulated partner’s technology layer.

The consultation also proposes a reduced net-worth requirement of INR 2 crore for MF-PMS applicants, optional additional employee requirements, optional dealing room requirements and simplified disclosure documents. For founders, those relaxations are not a shortcut around governance. They simply make the compliance operating model more proportionate to a mutual-fund-only product.

A key conflict area is the relationship between a mutual fund distributor and MF-PMS. SEBI’s consultation discusses arm’s-length activity segregation and client-level segregation. That means a founder cannot assume that one customer can be moved between distribution and managed services casually. The product must be able to show which service the client selected, what disclosures were given, what fee model applies and whether the same entity is offering both roles to the same client.

Overseas Securities: The FEMA Layer Founders Cannot Ignore

SEBI’s consultation proposes allowing portfolio managers to invest client funds in specified overseas securities, including listed equity shares, listed debt securities and units or securities issued by overseas mutual funds or unit trusts registered with overseas regulators. The consultation also states that foreign securities investment will be governed under FEMA and that portfolio managers must ensure applicable FEMA limits and reporting requirements are not breached.

For founders, this is not merely an instrument feed problem. A wealthtech platform that supports overseas PMS allocation may need client-wise LRS tracking, permitted instrument tagging, consent records, jurisdiction risk notes, tax-residency inputs, remittance status, rejected-transfer handling and audit logs. If a product lets clients toggle “global exposure” without these controls, it may be convenient but fragile.

The consultation also refers to explicit positive client consent for foreign securities, including consent during onboarding for new clients and addendum-based positive consent for existing clients. A consent checkbox alone may not be enough in practice. The better approach is to maintain a dated consent package that shows the client saw the relevant instrument universe, FEMA note, currency risk, jurisdiction risk, cost disclosures and reporting responsibilities.

Derivatives Flexibility Requires A Strong Risk Engine

SEBI has proposed greater flexibility for exchange-traded derivatives, including total exposure not exceeding 1.25 times a client’s AUM, an unhedged short exposure limit through equity exchange-traded derivatives up to 50% of client AUM, and an options exposure limit tied to option premium paid and received. The proposal is subject to explicit positive client consent.

This is a serious product area. Derivatives permissions cannot be reduced to a dropdown in the admin panel. A founder building execution or portfolio-management technology should think about pre-trade validation, exposure calculation, hedge classification, option-premium tracking, client-level limits, exception approval, suitability checks and breach escalation.

The compliance question is not only whether an order can be placed. It is whether the platform can prove why it was allowed, who approved it, what client consent existed, what exposure was calculated at the time, how the trade interacted with other positions and whether the final client report reflects the risk correctly.

Operational Relaxations: Useful, But Not Light-Touch Compliance

The consultation includes several ease-of-compliance proposals. These include digital disclosure documents, filing timeline changes, simplification of reporting, a revised approach to principal officer qualifications, compliance officer certification clarity, net-worth deployment rules and surrender-of-registration provisions. These look procedural, but they often decide whether a platform can scale without manual cleanup.

A digital disclosure document should be treated as a controlled record, not a PDF casually emailed to clients. The platform should know which version was live, which client received it, when it was acknowledged, what changed, whether the change was material, when SEBI filing was triggered and which internal approval preceded the change.

The dealing-room relaxation is another example. SEBI is considering relaxation for portfolio managers with less than 10 clients or AUM below INR 100 crore, subject to appropriate audit trail of order-placement communications and adequate internal controls. For automated execution logic, SEBI has asked whether similar relaxation should apply. Founders building algo-assisted order generation should expect sharper questions on code access, model change logs, testing, override rights, surveillance and order-level audit exports.

Demat Portability And POA: Consent Design May Become A Product Moat

SEBI’s demat portability question is practical. Today, investors may need fresh demat arrangements when moving between portfolio managers or when there is a custodian change. The consultation asks whether portability covering KYC data, custodial arrangements and demat assets should be enabled with proper consent and safeguards.

If implemented, portability could reduce friction for clients and create opportunities for onboarding, custodian-integration and transfer-tracking products. But the operational detail will matter: client authorisation, KRA reliance, depository guidelines, custodian coordination, failed transfer handling, partial portfolio movement, corporate actions during transfer and reconciliation after migration.

The POA proposal is similarly important. SEBI notes that portfolio managers presently obtain Power of Attorney in addition to client agreements as part of the operational model. Relaxation may reduce administrative friction, but a startup should not read this as permission to weaken authority controls. The replacement architecture must still answer: who authorised the transaction, what authority was available, what bank or custodian documentation applied, how misuse is prevented and how the client can revoke or modify authority.

Who Should Consider Sending Comments To SEBI

• Registered portfolio managers that will be affected by investment universe, net-worth, disclosure, dealing-room, derivatives or operational changes.
• Wealthtech startups building PMS onboarding, analytics, reporting, rebalancing, execution, risk, KYC or client-consent workflows.
• Mutual fund platforms, ETF allocation products and advisory businesses evaluating a direct-plan or model-portfolio layer.
• Custody, demat, reconciliation and operations platforms that may be affected by portability and POA changes.
• Compliance SaaS, regtech and legal-ops platforms that track disclosure documents, material changes, audit trails and regulatory reporting.
• Family-office, HNI and investment-platform businesses that work with overseas securities or global asset allocation.

How To Prepare A Response Before 13 August 2026

Documents And Records To Keep Ready

• Product note explaining whether the business provides technology, distribution, advice, research, execution support, portfolio management or a combination.
• Client onboarding forms, KYC process maps, suitability/risk-profiling logic and consent screens.
• Draft or existing client agreements, disclosure documents, fee schedules, mandate terms and addendum templates.
• Instrument master showing listed, to-be-listed, unlisted debt, overseas securities, ETFs, SIFs and mutual funds separately.
• FEMA/LRS control memo for overseas securities, including client-level limits and reporting responsibilities.
• Derivatives exposure calculation logic, hedge tagging, options premium tracking and breach escalation process.
• Dealing, order-placement and execution audit-trail policy, including automated execution logic if applicable.
• Demat, custodian and bank-account workflow note, including portability and POA/mandate assumptions.
• Compliance officer notes, board discussion record and a decision log for whether the startup will submit comments.

Founder Risk Check: Questions Investors May Ask

If the startup is raising capital, investors may use the consultation to test regulatory maturity. Founders should be ready for specific questions, not broad assurances.

Mistakes To Avoid

• Treating the consultation date casually. The official SEBI listing is dated 23 July 2026 and comments are due by 13 August 2026.
• Calling MF-PMS a final product category before final regulations are notified.
• Assuming INR 25 lakh applies to all PMS products; the proposal is for MF-PMS, while the general PMS threshold remains a separate issue.
• Building overseas allocation features without FEMA, LRS, client consent and reporting workflows.
• Allowing derivatives exposure without a client-level risk engine and clear consent trail.
• Using one generic consent for PMS, advisory, distribution, execution and overseas securities.
• Ignoring demat portability and POA proposals because they sound operational; they can materially change onboarding and switching friction.
• Submitting comments that only say “we support ease of business” without practical examples, safeguards and alternate wording.

BSA View For Founders

The SEBI PMS Review 2026 is a useful reminder that fintech products are shaped by small operating details. A lower ticket size, an instrument-permission change or a digital disclosure rule may look simple in a headline. In the actual product, it affects screens, contracts, logs, reconciliation, fees, consent and governance.

Founders should treat this consultation as a product-risk exercise. Even where the startup is not itself registered with SEBI, it should maintain a compliance map showing the regulated perimeter. That map helps in partner discussions, fundraising diligence, enterprise sales and internal decision-making.

The best response before 13 August 2026 is specific. If a proposal helps your model, explain why and suggest guardrails. If it creates difficulty, quantify the issue and propose workable language. SEBI consultations are more useful when industry comments show actual workflows rather than abstract support or objection.

Sources

• SEBI consultation page, 23 July 2026: Consultation Paper on Comprehensive Review of SEBI (Portfolio Managers) Regulations, 2020
• SEBI public comments portal: SEBI web-based public-comment form
• SEBI Portfolio Managers Regulations, 2020, last amended on 3 September 2025: SEBI regulations page
• APMI-hosted copy of the SEBI consultation paper PDF used for proposal-level reading: Consultation paper PDF
• Economic Times report on MF-only PMS proposal: SEBI proposes simplified rules, lower investment floor for mutual fund PMS

FAQ Section

Founder / Business Takeaway

The SEBI PMS consultation is a useful reminder that financial product design and regulatory design move together. The Best CS Firm In India standard for wealthtech founders is to track the rulebook before the product crosses into regulated activity, and to keep the documentation clean enough for SEBI, partners, clients and investors to understand the same workflow.