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1. Regulatory Background

As part of its continuing reforms to simplify compliance and promote “Ease of Doing Business” in the securities market, the Securities and Exchange Board of India (SEBI) has introduced a formal approval mechanism for transfer of PMS business between registered Portfolio Managers.

This framework, issued under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Regulation 40(2) read with Regulation 42 of the SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”), enables regulated entities to transfer their PMS operations—either wholly or in part—under prescribed conditions and oversight.

The circular titled “Transfer of Portfolios of Clients (PMS Business) by Portfolio Managers” [SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF-1/P/CIR/2025/137, dated 24 Oct 2025] now operationalises a clear process for such transfers.

2. Key Provisions of the Framework

1. Transfer within the same group

• Portfolio Managers forming part of the same group (as defined under Regulation 2(1)(p) of the PMS Regulations) are permitted to transfer specific Investment Approaches or the entire PMS business to another entity within the group.
• Where the entire PMS business is transferred, the transferor must surrender its PMS registration certificate within 45 working days from completion of the transfer.
• Where only selected Investment Approaches are transferred, the transferor may continue its PMS registration and carry on remaining operations.
• Both entities must maintain robust client-communication protocols and ensure that all investor consents and account migrations comply with SEBI’s disclosure and fiduciary standards.

2. Transfer between unrelated entities

• When the proposed transfer is between Portfolio Managers not belonging to the same group, both the transferor and the transferee must jointly apply to SEBI for prior approval.
• Such transfers must cover the entire PMS business; partial transfers of individual strategies or Investment Approaches are not permitted.
• The transferee Portfolio Manager shall, after approval, become fully responsible for all acts, obligations, pending actions, litigations, and liabilities of the transferor.
• An undertaking in the format of Annexure-I to the circular must accompany the joint application, confirming assumption of all rights and responsibilities.

3. Timelines and procedural compliance

• The entire transfer process must be completed within two months from the date of SEBI’s approval.
• During this period, the transferor may continue to manage existing clients but cannot onboard new clients.
• Upon completion of the transfer—or on expiry of the two-month period, whichever is earlier—the transferor must surrender its PMS registration certificate following the procedure under Regulation 42 of the PMS Regulations.
• An undertaking as per Annexure-II confirming compliance and completion of all client transfers must also be filed with SEBI.

3. Compliance Considerations and Implications

1. For Portfolio Managers

• The framework provides operational flexibility for internal re-organisation, consolidation, or succession planning within financial groups.
• It creates a structured exit mechanism for PMS licence holders who wish to discontinue operations, ensuring investor continuity and accountability of liabilities.
• Entities should align compliance workflows to meet documentary, consent, and reporting obligations under the circular.

2. For Investors and Clients

• Clients will benefit from a transparent process, written intimation, and assurance of continuity, as transferee PMS entities are mandated to assume full fiduciary responsibility for all transferred portfolios.
• Investors should review updated disclosure documents and confirm that their Investment Approaches and risk profiles are maintained post-transfer.

3. For NBFCs, PE, and Wealth Groups

• The framework enables intra-group restructuring of PMS arms, particularly for NBFCs or PE-backed wealth platforms managing multiple PMS entities.
• It simplifies the transfer of PMS clients in group reorganisations, mergers, or succession planning without triggering licence cancellation risk.

4. Recommended Actions

Area	Immediate Compliance Step
Regulatory Filings	Evaluate the applicability of the circular to ongoing or proposed business transfers; prepare joint application and undertakings in the prescribed Annexures.
Internal Approvals	Obtain Board approval for the proposed transfer; document rationale, client-migration plan, and liability assumption structure.
Client Communication	Issue a clear written intimation to all PMS clients detailing the proposed transfer, timelines, and new contact points for grievance redressal.
Timelines	Ensure the transfer is completed and the certificate is surrendered (if applicable) within 2 months of SEBI approval.

5. Legal References

1. SEBI (Portfolio Managers) Regulations, 2020
   • Regulation 40(2): Power to issue directions and conditions on registration and transfer.
   • Regulation 42: Surrender of certificate of registration.
   • Regulation 2(1)(p): Definition of “group”.
2. SEBI Circular:

SEBI/HO/IMD/IMD-I/DOF-1/P/CIR/2025/137 dated 24 October 2025 — “Transfer of Portfolios of Clients (PMS Business) by Portfolio Managers.”

3. Statutory Authority:

Section 11(1), SEBI Act, 1992 — empowers SEBI to protect investor interests and regulate intermediaries.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.

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