Issue No.: 1/11825/2026 dated 18.05.2026
The Securities and Exchange Board of India (SEBI) has issued informal guidance clarifying the permissibility of pledging securities held by clients under a Non-Discretionary Portfolio Management Services (ND-PMS) arrangement for personal borrowing purposes.
The clarification was issued in response to a request made by a company registered as a Portfolio Manager seeking regulatory guidance on the issue.
1. Query Raised by the Portfolio Manager
The Portfolio Manager sought clarification on whether clients under Non-Discretionary PMS may pledge securities held in their demat accounts for availing personal loans or borrowings.
The issue related to whether such pledging would contravene the restrictions contained under Regulation 23(8) governing portfolio management activities.
2. Pledging Permitted at Client’s Sole Discretion
SEBI clarified that clients under ND-PMS are permitted to pledge securities held in their demat accounts for personal borrowing, subject to an important condition.
Such pledging must be:
- Initiated solely at the discretion of the client; and
- Undertaken without involvement, direction or participation of the Portfolio Manager.
Accordingly, the Portfolio Manager should not facilitate, influence or play any role in the decision to pledge securities.
3. No Violation of Regulation 23(8)
SEBI further clarified that such pledging, when undertaken independently by the client, would not amount to a breach of Regulation 23(8) of the applicable portfolio management regulatory framework.
The regulator recognised that under a Non-Discretionary PMS structure, investment decisions and related actions remain with the client.
4. Treatment of Pledged Securities for AUM Calculation
The guidance additionally clarifies that securities pledged by clients may continue to form part of the Assets Under Management (AUM) of the Portfolio Manager.
However, this treatment shall continue only until invocation of the pledge.
Upon invocation, the pledged securities would cease to remain part of the PMS-managed holdings.
5. Objective of the Clarification
The informal guidance aims to provide regulatory clarity for Portfolio Managers and ND-PMS clients regarding personal pledging of securities while preserving client autonomy and ensuring compliance with SEBI regulations.
The clarification also ensures consistency in AUM reporting and interpretation of regulatory restrictions applicable to portfolio management activities.
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