The Securities and Exchange Board of India (SEBI) has proposed allowing portfolio managers to invest clients’ funds in foreign securities and undertake limited unhedged short positions through equity exchange-traded derivatives as part of a comprehensive review of the SEBI (Portfolio Managers) Regulations.
The proposals have been released for public consultation through the draft SEBI (Portfolio Managers) Regulations, 2026, aimed at expanding investment opportunities, simplifying compliance and aligning the regulatory framework with evolving market practices.
According to the consultation paper, portfolio managers are currently not permitted to invest client funds in overseas securities. SEBI has proposed allowing investments in listed foreign equity shares, listed foreign debt securities, and overseas mutual funds or unit trusts regulated by overseas authorities that invest in listed equities, debt securities and listed Real Estate Investment Trusts (REITs).
The market regulator said the move would provide sophisticated investors and high-net-worth individuals with access to international investment opportunities through regulated portfolio managers while bringing regulatory parity with mutual funds, Alternative Investment Funds (AIFs) and portfolio managers operating from the International Financial Services Centre (IFSC), which are already permitted to invest overseas.
SEBI said all overseas investments would remain subject to the provisions of the Foreign Exchange Management Act (FEMA), 1999. Portfolio managers would be required to comply with applicable FEMA limits and reporting requirements and obtain explicit consent from clients before investing in foreign securities.
The regulator has also proposed providing greater flexibility in the use of exchange-traded derivatives. Under the draft regulations, portfolio managers would be allowed to take total exposure of up to 1.25 times a client’s assets under management (AUM).
Within this limit, they may take unhedged short positions through equity exchange-traded derivatives of up to 50 per cent of a client’s AUM, in addition to derivative positions used for hedging and portfolio rebalancing.
Among other proposals, SEBI has suggested allowing investments in “to be listed” securities to broaden the investment universe available to portfolio managers.
The consultation paper also proposes permitting discretionary portfolio managers to invest up to 10 per cent of a client’s AUM in investment-grade unlisted debt securities. In addition, it recommends introducing a dedicated Mutual Fund-only Portfolio Management Services (MF-PMS) framework with lower entry barriers for investors.
The draft regulations also include measures to simplify compliance, consolidate regulatory provisions and streamline the language of the existing rules. SEBI has invited public comments on the proposals before finalising the revised regulatory framework.
-ANI
