Sebi approves new investment rules
India’s market watchdog Sebi has endorsed a series of regulatory updates designed to enhance market engagement, expand investment choices, and streamline compliance protocols. The measures encompass a full revision of portfolio management guidelines, increased accessibility for Foreign Portfolio Investors (FPIs) within commodity derivatives, and the authorization of depository receipts linked to REIT and InvIT assets.
Overhauled Portfolio Management Framework
The Sebi board has sanctioned the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2026, superseding the prior 2020 framework. The updated rules enable portfolio managers to engage in initial public offerings (IPOs), primary market debt issuances, and a broader spectrum of overseas securities.
Under the new framework, managers may allocate up to 10% of a client’s assets under management toward investment-grade, unlisted non-convertible debt securities, provided the client agrees. Additionally, they are authorized to purchase overseas listed equity and debt instruments, REITs, foreign mutual funds, exchange-traded funds (ETFs), index funds, and sovereign debt, adhering to applicable regulations.
Expanded Access for FPIs and Deposit Receipts
Sebi has granted FPIs permission to trade in physically settled, non-agricultural commodity derivative contracts, provided they follow safeguards mandating the exit of positions at least three days prior to expiry and before the tender period begins. Furthermore, the board has approved a proposal allowing Real Estate Investment Trusts (REITs) and publicly listed Infrastructure Investment Trusts (InvITs) to issue Depository Receipts in approved overseas jurisdictions.
The primary objective of these changes is to attract foreign capital into these investment vehicles. The board also broadened the definition of accredited investors, permitting individuals with securities market assets totaling ₹5 crore and corporate entities with assets of ₹20 crore to qualify, alongside existing income and net-worth benchmarks.
Revised Settlement Mechanisms and Additional Regulations
The regulator approved new rules establishing a fresh formula for calculating settlement amounts and a streamlined fast-track process for cases involving settlements of up to ₹10 lakh. The updated system will handle disgorgement of wrongful gains and losses separately, eliminating the prior double-counting of these figures in settlement terms.
Sebi also sanctioned the fourth Settlement Scheme, 2026, addressing entities involved in non-genuine trades of illiquid stock options on the BSE between April 1, 2014, and September 30, 2015. The board modified the regulations governing exit offers during a sponsor change and clarified the rights of dissenting unitholders.
Makarand M Joshi, Founder partner at MMJC & Associates, observed that Sebi data indicates settlement applications reached a peak of 703 in FY24-25 before declining to 439 in FY25-26, with 170 applications resolved. He noted that this trend demonstrates the increasing utilization of settlement mechanisms and the necessity for greater efficiency.
Additional Compliance and Structural Updates
Sebi has relaxed reporting obligations for research analysts and entities by removing the mandate to record communications with institutional investor clients. The agency also expanded the regulatory scope for vault managers to encompass bullion supporting other Sebi-specified instruments, such as gold and silver ETFs and bullion derivatives.
Strictures on vault managers were strengthened, including raising the minimum net worth requirement from ₹50 crore to ₹75 crore, while enhancing standards for storage, security, insurance, governance, and risk management. Sebi introduced the role of Independent Fund Managers, who may operate client portfolios in conjunction with registered portfolio managers.
The revised PMS framework has been condensed by 53%, shrinking the regulations from 70 pages to 33 pages, and cutting the word count by approximately 42%. Sebi stated that these steps aim to deepen market participation, improve ease of doing business, expand investment opportunities, and fortify the regulatory framework across various market segments.
