The Securities and Exchange Board of India (Sebi) has issued clarification allowing clients of non-discretionary portfolio management services (ND-PMS) to pledge shares held in their demat accounts for availing loans. According to reports from Business Standard and The Hindu BusinessLine, this guidance was provided in an informal letter issued to Geojit Financial Services on May 18, 2026 under the SEBI (Informal Guidance) Scheme, 2025. The regulator stated that such pledging would not constitute borrowing by the portfolio manager on behalf of the client, which is barred under Sebi's Portfolio Managers Regulations, 2020. As per NDTV Profit, this clarification opens up a new avenue for credit against managed portfolios, offering key regulatory comfort to the industry. The brokerage had sought clarity on whether such pledges would violate provisions of the SEBI (Portfolio Managers) Regulations, 2020, particularly restrictions relating to borrowing on behalf of clients.
As reported by Business Standard and The Hindu BusinessLine, Sebi emphasized that restrictions under Regulation 23(8) of the PMS Regulations do not prevent ND-PMS clients from initiating pledges, provided the pledge is initiated solely by or at the client's discretion and for the client's own benefit. The regulator clarified that as the beneficial owner of the securities, the client has the right to use its own assets, including those under PMS, as pledge for loans. The final decision regarding pledging rests entirely with the client, with NDTV Profit noting that the move enables clients to unlock liquidity without exiting their investments. However, the regulator maintained a clear boundary that portfolio managers cannot be involved in the borrowing transaction, with Sebi noting that such pledging would not be construed as borrowing of funds or securities by the portfolio manager under Regulation 23(8) of the PMS Regulations, as long as the borrowing arrangement is directly between the client and the lender.
According to the regulatory guidance, under the ND-PMS structure, clients open designated bank and demat accounts with approved custodians, while trading activities are carried out through empanelled brokers. As reported by Business Standard and The Hindu BusinessLine, the securities remain in the beneficial ownership of the client and are held in the client's name. Sebi noted that pledged securities can continue to be counted as part of the portfolio manager's assets under management (AUM) and regulatory disclosures until the pledge is actually invoked, since the beneficial ownership remains with the client until that stage. In another important clarification, NDTV Profit reports that Sebi allowed portfolio managers to continue counting these pledged shares as part of their AUM, provided the pledge has not been invoked, ensuring that reported AUM figures remain unaffected by such client-level borrowing. The market regulator also addressed concerns regarding regulatory reporting and AUM calculations, stating that pledged securities can continue to be included in the portfolio manager's AUM and regulatory disclosures until the pledge is actually invoked.
The clarification creates opportunities for lenders to expand loan-against-shares products targeted at PMS clients, as reported by NDTV Profit. However, the move also underscores risks for investors, as lenders retain the right to sell pledged shares in case of default, which could also have implications for market volatility during periods of stress. The guidance provides clarity for clients seeking to use their securities as collateral for personal loan arrangements while maintaining the regulatory framework for portfolio management services. This development is seen as positive for the wealth management and PMS industry, enabling clients to access liquidity without compromising their investment positions. The clarification is expected to provide operational flexibility for portfolio managers and clients using ND-PMS structures, particularly high-net-worth investors seeking liquidity against their investment portfolios without liquidating holdings. Sebi noted that the guidance was issued based on the facts presented in the application and does not constitute a formal board decision or override any other applicable legal or regulatory requirements.
