Foreign Securities in a Domestic Investment Mandate: SEBI, Custody and Valuation Checklist

By Ravi Sisodia · Reviewed by CA Divyanshu Sengar · Updated 5 October 2026

A domestic portfolio mandate that permits foreign securities needs a three-layer file: SEBI/PMS authority, client mandate limits, and operational custody/valuation/FX controls. The investment thesis is only one part of compliance.

Finin2min 2-Minute Summary

• The current Portfolio Managers Regulations and Master Circular govern domestic PMS activity; the client's agreement/disclosure document defines the investment mandate.
• Foreign securities introduce market, currency, settlement, custody, tax and repatriation risks.
• Pre-trade checks should confirm the security/market is permitted under the applicable regulatory and mandate framework.
• Valuation and FX rates should come from documented, consistent sources.
• Custody statements and broker records should reconcile to the client's portfolio and INR reporting.

Authority and mandate before the trade

Identify the regulatory basis that permits the exposure and the exact client-mandate clause. A broad phrase such as 'global opportunities' should not substitute for defined limits, permitted instruments and risk disclosure.

Where RBI/FEMA or other cross-border rules affect the structure, obtain the relevant specialist check rather than treating SEBI approval as the whole answer.

Custody and settlement

Map local broker, overseas broker/custodian, cash account, settlement cycle, corporate actions and reconciliation. Record what happens if a foreign market holiday or settlement failure conflicts with an Indian reporting date.

Client assets should remain traceable through every intermediary.

Valuation and FX

Choose price source, valuation time zone and currency-conversion source. Keep the rate/date used in client reporting so performance can be reproduced.

For illiquid foreign instruments, add a valuation escalation rather than defaulting to stale last-traded price.

Foreign-custody case: corporate action arrives after Indian reporting cut-off

A foreign security may announce a rights issue, dividend election or tender offer on a different holiday/calendar from India. If the overseas custodian sends the event after the PMS has produced its Indian client statement, cash or entitlement can appear as a reconciliation break. The operating model should have a corporate-action suspense process rather than treating every break as an accounting error.

Document election deadlines, FX conversion, withholding tax, cash receipt and final allocation to the client. If the mandate does not allow the client to make an election, the portfolio manager's authority and default action should be clear in the agreement.

• Maintain a foreign corporate-action calendar.
• Use suspense/late-event reconciliation controls.
• Preserve FX and withholding-tax evidence.

Tax and accounting hand-off

Foreign-security activity should feed a separate tax/accounting schedule showing acquisition date, foreign-currency cost, INR translation basis, dividend/interest, foreign withholding and disposal proceeds. Operations may reconcile custody perfectly while the investor's tax file remains incomplete. Assign ownership for that hand-off when the mandate is set up.

• Maintain transaction-level FX/tax evidence.
• Reconcile custodian income to tax records.

Foreign-security control file

• SEBI/PMS regulatory basis.
• Client mandate and exposure limit.
• Country/instrument eligibility.
• Custodian/broker arrangement.
• Price and FX methodology.
• Corporate-action/repatriation process.
• INR portfolio reconciliation.

Questions readers commonly ask

Can a PMS buy any foreign security if the client agrees?

No. Client consent does not override applicable regulatory permissions and limits.

Why is FX methodology important?

It affects valuation, performance and client reporting.

What is the key operational risk?

Breaks between foreign broker/custodian records and the Indian client portfolio.

Should country risk be disclosed?

Yes, along with currency, settlement, custody and repatriation risk.

Official / primary sources

• SEBI Portfolio Managers Regulations - Current PMS framework
• SEBI PMS Master Circular - Mandate, disclosure and operational controls

Disclaimer

Important: General educational and professional-reference material. Verify the current operative regulation/circular, portal version and exact facts before acting. Consultation papers are proposals unless a later operative instrument adopts them. Educational and professional reference only; confirm the current law, rates and the facts of your case before relying on this page.