Authority: Nodal Co-ordination Cell, Securities and Exchange Board of India (SEBI)

Order Date: August 17, 2026

Case Overview

SEBI responded to an informal guidance request from Share India Securities Limited regarding the permissibility of clients pledging securities held under Discretionary Portfolio Management Services (D-PMS). The company sought clarification on six specific queries related to regulatory implications of such pledging arrangements. The guidance was sought under the Securities and Exchange Board of India (Informal Guidance) Scheme, 2025, referencing the company's letter dated June 22, 2026.

Share India Securities Limited provides D-PMS services where clients open demat accounts with approved custodians, and all trading activities are executed through empaneled brokers. The securities purchased under D-PMS remain in the client's beneficial ownership and are held in the client's name in the demat account. A prospective client had inquired whether they could pledge securities held in their demat account purchased through the D-PMS framework.

SEBI considered the relevant provisions of the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, particularly Regulation 22(2)(m) which states that in case of discretionary portfolio manager, the liability of client shall not exceed his investment with the portfolio manager; Regulation 23(1) which requires discretionary portfolio managers to independently manage client funds in a manner that doesn't partake character of Mutual Fund; and Regulation 23(8) which prohibits portfolio managers from borrowing funds or securities on behalf of the client.

Final Outcome

SEBI provided the following guidance on the specific queries:

  • For Query 1 & 2: SEBI clarified that clients have the right to use their own assets, including those under PMS, by way of pledge for availing loans they avail personally. The restriction on portfolio managers under Regulation 23(8) does not prevent D-PMS clients from initiating pledge of securities, provided the pledge is initiated solely at the client's discretion and for their own benefit.
  • For Query 3: SEBI stated that pledging of securities does not change the beneficial ownership from client (pledger) to the lender (pledgee) unless the pledge is invoked. Therefore, the market value of securities pledged by the client may continue to be included in the Portfolio Manager's Assets Under Management until the invocation of the pledge and reflected in regulatory reporting, unless the Client withdraws from the Asset Under Management for the purpose of pledge or otherwise.
  • For Query 4 & 6: SEBI declined to provide guidance, stating that since these queries are general in nature and do not cite applicable legal provisions, responses are not being provided in terms of paragraph 11(a) and 11(d) of the Informal Guidance Scheme, 2025.
  • For Query 5: SEBI stated that the Portfolio Manager may be guided by the provisions of the PMS Regulations and the Circulars/Master Circulars issued thereunder from time to time.

The guidance is based solely on the representations made in the application and expresses only the relevant Department's position on enforcement action. It does not express the decision of the SEBI Board and does not preclude seeking other opinions.

Topics: Portfolio Management Regulation, Securities Pledging, Client Asset Rights