The Securities and Exchange Board of India has clarified that clients availing non-discretionary portfolio management services (ND-PMS) can pledge securities held in their demat accounts for their own borrowing requirements without violating portfolio management regulations, according to an informal guidance letter issued to Geojit Financial Services.
The clarification, issued on May 18 under the SEBI (Informal Guidance) Scheme, 2025, came in response to a request from the brokerage and wealth management firm on whether securities purchased under an ND-PMS arrangement could be pledged by clients while continuing to remain part of the portfolio manager’s assets under management (AUM).
In its interpretive letter, SEBI said restrictions under Regulation 23(8) of the SEBI (Portfolio Managers) Regulations, 2020 — which prohibit portfolio managers from borrowing funds or securities on behalf of clients — would not prevent ND-PMS clients from independently pledging their securities.
Client ownership
The regulator noted that in a non-discretionary PMS structure, investment decisions are taken in accordance with the client’s directions and the final decision rests entirely with the client. Since the securities remain in the beneficial ownership of the client, they can be used as collateral for loans at the client’s discretion, SEBI said.
Geojit had sought guidance after a prospective client asked whether securities held under the ND-PMS framework could be pledged either directly by the client or through instructions routed via the portfolio manager to the custodian. The company had also sought clarity on whether such pledging would amount to borrowing by the portfolio manager on behalf of the client.
SEBI further clarified that pledged securities can continue to be included in the portfolio manager’s AUM and regulatory reporting until the pledge is invoked. It pointed out that a pledge does not alter beneficial ownership unless the lender invokes the pledge and takes control of the securities.
However, the market regulator refrained from providing specific guidance on disclosures, risk warnings and additional precautions sought by the company, saying the queries were general in nature and did not cite applicable legal provisions.
Disclosure guidance
On whether SEBI or custodians need to be informed about such pledging arrangements, the regulator advised the portfolio manager to be guided by existing PMS regulations and circulars issued from time to time.
The clarification is expected to provide greater operational flexibility for PMS clients seeking liquidity against securities held in managed portfolios, while maintaining regulatory clarity for portfolio managers and custodians.
Published on May 19, 2026