India's Securities and Exchange Board of India (SEBI) has introduced significant changes for the country's $463 billion portfolio management services (PMS) industry. For the first time, PMS firms are now allowed to invest clients' money in a variety of overseas securities, including listed foreign equities, debt securities, overseas mutual funds, and real estate investment trusts (REITs). This move provides affluent Indian investors with broader access to global markets and diversification opportunities, operating under India's Liberalized Remittance Scheme, which permits individuals to remit up to $250,000 abroad annually.
In addition to overseas investments, SEBI has also authorized portfolio managers to take unhedged short positions in equity derivatives, up to 50% of a client’s assets under management. This represents a substantial expansion of the tools available to money managers, allowing for more sophisticated hedging strategies and potential alpha generation. The regulator also increased the allowed exposure to exchange-traded derivatives to 1.25 times client assets.
Further reforms include the introduction of a new mutual fund portfolio product, the Portfolio Managers' Route for Investing in Mutual Fund Units (PRIM), with a minimum investment of 2.5 million rupees, half the 5 million rupee threshold for standard PMS offerings. PMS firms can also now invest in Initial Public Offerings (IPOs) and primary-market debt issuances, and discretionary PMS clients can allocate up to 10% of their assets under management to investment-grade, non-convertible, unlisted debt securities, subject to client consent. These changes are part of a broader overhaul aimed at developing the PMS industry and streamlining regulations.
