SEBI clears PMS Regulations 2026: IPOs, FPIs, derivatives access expanded
Synopsis
SEBI has replaced its 2020 PMS rulebook with an entirely new framework that, for the first time, lets portfolio managers deploy client money into IPOs and primary debt markets, while allowing DPMS to tap unlisted debt up to 10% of AUM. Simultaneously, FPIs get widened access to commodity derivatives — but with strict T-3 exit rules to prevent delivery-side risk.
Key Takeaways
SEBI approved the SEBI (Portfolio Managers) Regulations, 2026 on 24 September 2026 , replacing the 2020 framework.
Portfolio managers can now invest client funds in IPOs and primary market debt issuances for the first time under the consolidated rules.
DPMS may allocate up to 10% of a client's AUM in investment-grade, non-convertible, unlisted debt securities with client consent.
Derivatives exposure via exchange-traded instruments is permitted up to 1.25 times a client's AUM.
FPIs gain access to non-agricultural index derivatives and non-cash-settled commodity derivatives, subject to mandatory exit before the Tender Period (T-3 days before expiry).
FPIs cannot increase positions from T-3 day onward, ensuring no delivery obligations are triggered.
The Securities and Exchange Board of India (SEBI) on Thursday, 24 September 2026, approved a sweeping new regulatory framework for portfolio managers, expanding their investment universe to include initial public offerings (IPOs), primary debt issuances, certain foreign securities, and direct mutual fund plans. The move, formalised as the SEBI (Portfolio Managers) Regulations, 2026, replaces the existing 2020 regulations and marks the most significant overhaul of the portfolio management services (PMS) industry in six years.
What the New PMS Framework Allows
Under the revised rules, portfolio managers will now be permitted to deploy client funds in IPOs and primary market debt issuances — avenues that were previously off-limits. This gives PMS providers direct access to the primary market for the first time under a consolidated regulatory framework.
Discretionary portfolio management services (DPMS) will additionally be allowed to allocate up to 10 per cent of a client's assets under management (AUM) in investment-grade, non-convertible, unlisted debt securities, subject to explicit client consent. This opens a controlled window into private credit markets for high-net-worth portfolios managed through PMS.
The framework also expands the use of exchange-traded derivatives, permitting exposure up to 1.25 times a client's AUM. The regulator has described these changes as aimed at easing compliance, consolidating regulatory provisions, and removing redundant requirements — a long-standing ask from the PMS industry.
FPI Access to Commodity Derivatives Widened
In a parallel decision, the SEBI Board also widened the scope for foreign portfolio investors (FPIs) to participate in exchange-traded commodity derivatives, with the stated objective of deepening liquidity in that segment.
FPIs will now be permitted to participate in non-agricultural index derivatives regardless of whether the underlying contracts are cash-settled. They will also be allowed into non-cash-settled non-agricultural commodity derivatives — a category previously restricted to domestic participants.
Safeguards Built Into the FPI Rules
SEBI has embedded several risk-management guardrails into the FPI commodity derivatives framework. FPIs participating in non-cash-settled contracts must exit their positions before any delivery obligation arises — specifically, before the start of the Tender Period, which commences three days before contract expiry.
Crucially, FPIs will not be permitted to build or increase positions from T-3 day onward, preventing late accumulation that could create delivery-side stress at expiry. These restrictions effectively keep FPIs as trading participants without exposing them — or the market — to physical delivery obligations.
Why This Regulatory Overhaul Matters
The PMS sector has grown sharply in recent years, driven by rising affluence among high-net-worth investors, but the regulatory architecture had not kept pace. The 2020 regulations were seen as overly restrictive on investment flexibility, limiting the sector's ability to compete with alternative investment funds (AIFs) and offshore wealth vehicles.
The new framework attempts to close that gap while maintaining investor-protection guardrails — notably the client-consent requirement for unlisted debt exposure. Notably, this is part of a broader pattern of SEBI incrementally modernising market-access rules, having previously expanded FPI participation in government securities and corporate bond markets.
The commodity derivatives expansion for FPIs, if it succeeds in attracting overseas capital, could improve price discovery in non-agricultural commodities — a segment that has historically suffered from thin foreign participation. All eyes will now be on how swiftly SEBI issues the operational circulars needed to bring the new regulations into force.
Point of View
The regulator is acknowledging that PMS must compete on equal footing with AIFs — but the 10% cap on unlisted debt and the consent requirement signal SEBI is not ready to fully deregulate. The FPI commodity derivatives expansion is the more structurally significant move: thin foreign participation has long been blamed for poor price discovery in Indian non-agricultural commodity markets. The T-3 exit rule is a sensible safeguard, but its enforceability under volatile market conditions will be the real test. Whether these reforms translate into a meaningful step-up in institutional participation — or merely a regulatory tidying exercise — depends almost entirely on implementation speed and operational clarity.
NationPress
24 Sept 2026
Frequently Asked Questions
What are the new SEBI PMS Regulations 2026?
The SEBI (Portfolio Managers) Regulations, 2026, approved on 24 September 2026, replace the existing 2020 framework and expand the investment universe for portfolio managers to include IPOs, primary debt issuances, certain foreign securities, and direct mutual fund plans. The new rules also ease compliance requirements and remove redundant regulatory provisions.
Can portfolio managers now invest in IPOs under the new SEBI rules?
Yes. Under the SEBI (Portfolio Managers) Regulations, 2026, portfolio managers are explicitly permitted to invest client funds in IPOs and primary market debt issuances, which was not available under the previous 2020 framework.
What is the 10% unlisted debt limit for DPMS?
Discretionary portfolio management services (DPMS) may now allocate up to 10% of a client's AUM in investment-grade, non-convertible, unlisted debt securities. This allocation requires the explicit consent of the client and is designed to provide controlled exposure to private credit markets.
How has SEBI changed the rules for FPIs in commodity derivatives?
SEBI has permitted FPIs to participate in non-agricultural index derivatives regardless of settlement type, and also in non-cash-settled non-agricultural commodity derivatives. FPIs must exit all positions before the Tender Period begins — three days before contract expiry — and cannot add positions from T-3 day onward.
Why is SEBI expanding the PMS framework now?
The PMS sector has grown significantly, but the 2020 regulations were seen as overly restrictive compared to alternative investment funds (AIFs) and offshore vehicles. The new framework is intended to make PMS more competitive, deepen market liquidity, and attract greater participation from both domestic high-net-worth investors and foreign portfolio investors.
