SEBI's September Reset: PMS Goes Global, FPIs Get Commodity Access as India Courts Foreign Capital

India's capital markets regulator has just executed its most sweeping reset in years. At its board meeting on September 24, 2026, the Securities and Exchange Board of India (SEBI) approved the SEBI (Portfolio Managers) Regulations, 2026, replacing the 2020 framework, alongside new settlement rules, expanded foreign investor access and a common advertising code. The timing is deliberate. The moves come amid weak foreign investment flows, with FII outflow reaching $10 billion in 2025, and FIIs remaining net sellers in 12 of 17 trading sessions so far in September. Paired with the Reserve Bank of India's (RBI) easing of foreign portfolio investor (FPI) bank-account onboarding on September 18, New Delhi is signalling a coordinated reopening to foreign and domestic risk capital.

PMS 2.0: From Stock-Picking Mandate to Global Asset Allocator

The centrepiece is the overhaul of Portfolio Management Services (PMS). Under the new rules, portfolio managers can invest in initial public offerings (IPOs) and primary issuances in the debt market, with discretionary PMS permitted up to 10% of client AUM in investment-grade, non-convertible, unlisted debt securities and up to 1.25 times client AUM in exchange-traded derivatives. For a Rs 1.2-trillion PMS industry long constrained to listed Indian equities, this is a structural expansion into private credit, pre-listing exposure and hedging.

Crucially, PMS can now invest in foreign securities, including listed equity and debt, REITs, overseas mutual funds, ETFs, index funds and foreign government debt, subject to FEMA and the RBI's Liberalised Remittance Scheme (LRS). SEBI has also created PRIM — the Portfolio Managers Route for Investing in Mutual Fund units — allowing investment in direct plans of mutual funds, ETFs, index funds and Specialised Investment Funds with a minimum ticket of Rs 25 lakh, a net worth requirement of Rs 2 crore for PRIM-only applicants and management fees capped at 1% of AUM. Combined with deemed accredited status for FPIs and new accreditation thresholds of Rs 5 crore for individuals and Rs 20 crore for corporates, SEBI is building a bridge between affluent domestic capital, NRI wealth and global products under Indian oversight.

The compliance dividend is material. The rulebook has been cut from 70 pages to 33 pages, a 53% reduction, with provisos down from 47 to four. Dealing-room requirements are relaxed for managers with AUM below Rs 100 crore, covering 48% of registered PMS, while a standardised Investment Management Agreement and exclusion of statutory levies from the 0.5% operating-expense cap should lower operating friction and audit risk — a direct positive for mid-sized managers and chartered accountants advising them.

New Doors for FPIs: Commodities, REITs, and Easier KYC

For foreign investors, SEBI will allow FPIs to participate in non-agricultural index derivatives and non-cash-settled non-agricultural commodity derivatives, with mandatory exit before delivery and no position increases from three days before expiry. This cautiously opens India's commodity price discovery — particularly energy, metals and bulk chemicals — to global hedging flows without exposing FPIs to physical settlement and mandi-level complexities.

Equally significant is the framework to enable Depository Receipts against REIT and InvIT units, starting with issuance and listing at the IFSC in India. With commercial real estate and highways seeking patient, yield-oriented capital, GIFT City-listed DRs offer dollar-settled access without Indian demat and repatriation paperwork. If tax treatment and liquidity are competitive, this could redirect offshore India-real-asset demand from Singapore and Mauritius back onshore.

The RBI has reinforced the welcome. Notified on September 18, 2026 through the RBI (Commercial Banks – Know Your Customer) Amendment Directions, 2026 with immediate effect, banks can now accept FPI KYC documents certified overseas by scheduled commercial bank branches, correspondent foreign banks, notaries, court magistrates or Indian embassies. The facility extends to FPIs a route previously available only to NRIs and PIOs. It complements the SWAGAT-FI trusted-investor window, which has onboarded roughly 205 FPIs since June 1, 2026, and SEBI's early-September waiver of investor-group disclosures for G-Sec-only FPIs.

Enforcement Reset: Settlement, Ads and Bullion Vaults

SEBI also approved the (Settlement of Administrative and Civil Proceedings) Regulations, 2026, with a formula-based settlement amount linked to minimum penalty, stage and gravity, plus separate disgorgement. Entities can receive settlement notice before show-cause with 60 days to apply, extended to 90 days post show-cause, and a fast-track route for amounts up to Rs 10 lakh. Disgorgement interest is fixed at 9% p.a., and a fourth scheme addresses legacy BSE illiquid-option cases with payouts from Rs 1.44 lakh to Rs 7.20 lakh plus add-ons. The message: faster closure for technical breaches, sterner economics for disgorgement.

Other plumbing matters. A Common Advertisement Code will permit celebrity endorsements for brand promotions and post-facto reporting within three working days, vault managers for gold must raise net worth from Rs 50 crore to Rs 75 crore as coverage expands beyond EGRs to ETF and derivative bullion, and first-time NCD issuers no longer need to list all post-January 1, 2024 unlisted NCDs — only prospective issues. Each reduces listing hesitation and cost of compliance.

Why It Matters for Investors and Businesses

Analytically, this is not deregulation for its own sake. It is a supply-side response to three pressures: sluggish FPI flows amid high US yields, concentration of domestic savings in equities and physical gold, and the need to finance $1.5-trillion-plus infrastructure and energy-transition capex. By letting PMS allocate globally, use derivatives for risk management and channel mutual-fund direct plans, SEBI hopes to professionalise wealth management and retain HNI capital onshore rather than losing it to Dubai or US brokerages.

For CFOs, treasurers and auditors, implications are immediate. Review PMS mandates for new eligible assets, update LRS and FEMA documentation, reassess disclosure controls under the new settlement calculus, and for REITs, InvITs and NCD issuers, revisit IFSC listing and funding strategies. Risks remain — commodity volatility, overseas investment monitoring, and whether GIFT City DR liquidity materialises. But directionally, the September 24 package, backed by RBI's KYC pragmatism, marks India's clearest bid yet to deepen markets, widen the investor base and convert regulatory simplification into actual inflows.

Balaji K

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