SEBI has issued informal guidance clarifying that clients of discretionary portfolio management services may pledge their securities to obtain personal loans. Crucially, such pledged assets can continue to be counted as part of the portfolio's assets under management. The clarification resolves an operational ambiguity for portfolio managers and high-net-worth clients, confirming that pledging does not require exclusion from AUM calculations, preserving the integrity of reported portfolio valuations under the PMS framework.

Portfolio Management Services (PMS) in India are regulated by SEBI under the SEBI (Portfolio Managers) Regulations, 2020. A discretionary PMS grants the portfolio manager full authority to make investment decisions on behalf of the client without requiring client consent for each trade — distinguishing it from non-discretionary PMS where client approval is needed.

The minimum investment threshold for PMS is ₹50 lakh per client. PMS is aimed at high-net-worth individuals (HNIs) who seek customised, professionally managed portfolios.

This informal guidance addresses a nuanced but practically important question: when a D-PMS client pledges their securities (held in the portfolio) as collateral to avail a personal loan, should those securities be removed from the AUM figure? SEBI has said no — pledged securities can remain within the AUM.

This matters because AUM is a key metric of scale and performance for portfolio managers, affecting fee calculations, regulatory reporting, and client disclosures. If pledged assets had to be excluded, it would distort the reported portfolio value and complicate fee structures.

The ruling also reinforces the legal position that pledging is a client-level financing decision that does not alter the portfolio manager's discretionary mandate or the beneficial ownership of the securities. SEBI's informal guidance mechanism is itself noteworthy — it allows market participants to seek regulatory clarity on specific situations without formal adjudication.