SEBI Proposes New Rules for Portfolio Managers to Invest Abroad

The Securities and Exchange Board of India (SEBI) has announced a comprehensive proposal aimed at modernizing the regulatory framework that governs portfolio managers, which could significantly expand their investment capabilities to include overseas markets. This initiative is part of the draft SEBI (Portfolio Managers) Regulations, 2026, recently made available for public feedback. The primary goal of this review is to enhance investment opportunities for sophisticated investors while ensuring that the regulations align with the evolving market landscape and contemporary investment strategies. A key aspect of the proposal is to permit portfolio managers to allocate client funds to select foreign securities, a practice that is currently restricted under existing regulations. According to the consultation document, eligible foreign investments may encompass listed equity shares, foreign debt instruments, and mutual funds or unit trusts that are regulated by foreign authorities and invest in publicly traded equities, listed debt securities, and overseas Real Estate Investment Trusts (REITs). SEBI emphasized, "At present, portfolio managers are restricted from investing client funds in foreign securities... it is proposed to allow portfolio managers to invest client funds in the following overseas securities: Listed equity shares, listed debt securities, and overseas funds." This change aims to provide investors with access to foreign securities through a regulated professional investment framework.

SEBI's proposal is designed to offer high-net-worth individuals and other sophisticated investors a professionally managed pathway to global markets. Furthermore, it seeks to establish greater regulatory uniformity with mutual funds, Alternative Investment Funds (AIFs), and portfolio managers based in International Financial Services Centres (IFSCs), all of which currently have the authority to engage in overseas investments. The consultation paper specifies that all investments made under this new framework will still be subject to the provisions of the Foreign Exchange Management Act (FEMA) of 1999. Portfolio managers will bear the responsibility of ensuring compliance with FEMA limits and reporting requirements. Additionally, obtaining explicit consent from clients will be mandatory prior to executing any overseas investments, ensuring that clients are fully informed and agreeable to the risks involved.