The Securities and Exchange Board of India (Sebi) has issued a clarification allowing discretionary portfolio management services (PMS) clients to pledge securities held in their demat accounts for personal loan purposes. According to reports from The Economic Times, the clarification was issued in an informal guidance letter to Share India Securities following the intermediary's query about whether securities purchased under discretionary PMS could be pledged by clients.
Sebi confirmed that discretionary PMS clients remain the beneficial owners of securities purchased through the service and therefore have the right to use their own assets, including securities held under PMS, as collateral for loans they personally avail. As reported by The Economic Times, the regulator emphasized that rules do not prevent discretionary PMS clients from initiating pledge of securities, provided that the pledge is initiated solely at the clients' discretion and for their own benefit.
The clarification addresses concerns about restrictions on borrowing by portfolio managers under Regulation 23(8) of the PMS Regulations, 2020, which prohibits portfolio managers from borrowing funds or securities on behalf of clients. According to The Economic Times, Sebi stated that this restriction does not prevent a discretionary PMS client from independently pledging securities, providing clients with greater flexibility in accessing personal financing options.
The clarification alleviates prior worries regarding restrictions on borrowing by portfolio managers and provides PMS clients with the ability to secure personal loans using their own securities held under discretionary management. As reported by The Economic Times, this regulatory update ensures that clients maintain control over their assets while accessing financing for personal purposes, without the arrangement being treated as borrowing by the portfolio manager.
