In today’s ever-changing financial markets, the investor with deep pockets has to go beyond the traditional Mutual Fund to fulfill his/her high growth investment objectives. The Portfolio Management Service has come up as an effective wealth management solution to High Net Worth Individuals who have been looking for a tailored strategy to invest directly in the equity market.
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What are Portfolio Management Services (PMS)?
The Portfolio Management Services (PMS) is an investment service offered by qualified professionals who, based on the investor’s predefined objectives, oversee the investor’s portfolios containing stocks, bonds, or other securities. Unlike mutual funds, the services are offered individually to investors.
The Indian PMS is regulated by the Securities & Exchange Board of India (SEBI) to enable strict adherence and facilitate safety of the investor.
Types of Portfolio Management Services
There exist three forms of PMS investment schemes available. These are:
- Discretionary PMS
In discretionary PMS, the fund manager has complete authority to make investment decisions for the client. This is the most suitable choice for investors who want an active free hand yet want the expertise of professionals.
- Non-Discretion
In this case, the fund manager recommends investment options, but for their implementation, approval from the investor is needed. It meets the needs of investors who prefer to be closely involved in investment decisions.
- Advisory PMS
In the advisory PMS, the manager gives purely advisory functions, and the client makes the transactions independently.
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Main Characteristics of PMS Investment
- Personalized Investment Plan
The portfolios will be created based on risk tolerance, investment objective, and time horizon for each individual. Direct Ownership of Securities
- The direct ownership
The investors themselves hold securities through their Demat accounts, which provides them with complete transparency.
- Professional Fund Management
Professional portfolio managers rely upon in-depth research, market analysis, and risk management strategies.
- Focused Portfolio
PMS portfolios tend to be more concentrated compared to mutual funds, with a goal of achieving higher alpha generation.
Advantages of Portfolio Management Services
- Personalized Wealth Management
It provides customized solutions, not the generic type of investment products offered by others in
- Higher Growth Potential
By actively managing and focusing their investment, PMS seeks to perform better than benchmark indices in the long run.
- Transparency and Reporting
Investors are provided with comprehensive statements regarding portfolios as well as transaction information.
- Tax Efficiency
Taxation: As the securities are held in the investor’s name, taxes become easier to plan.
This section provides information regarding the entities and people who
Portfolio Management Services operating in India are applicable to:
- High-Net-Worth Individuals
- Institutional investors who have a long-term perspective
- Individuals seeking tailored equity market exposure
- Investors accustomed to dealing with Market Volatility
As per the guideline set by SEBI, the minimum amount required for investing in the PMS is ₹50 lakh, thereby classifying it as an upscale investment instrument.
Comparison between PMS and Mutual Funds
As mutual funds collect money from more than one investor and invest the money as per an already defined plan, the role performed by PMS is that of designing portfolios as per different objectives. It is more flexible and has greater returns as compared to the flexibility and returns offered by mutual funds. It is more suited to the needs of institutional investors.
Associated Risks with PMS
Like all market-related investments, PMS also involves risks such as market risks and the risk of concentration. Also, the returns on PMS are not guaranteed. This makes PMS suitable only for informed and risk-willing investors.
Conclusion
Portfolio Management Services (PMS) are considered a sophisticated investment option for those investors who seek customized approaches along with expert management strategies. Discipline in execution along with proper research work and understanding of the risk aspects would allow PMS to contribute significantly towards wealth creation.
Before investing, one should understand their investment objective, risk tolerance, and seek expert advice from a financial planner to understand whether or not PMS suits their investment plan or strategy.
Disclaimer: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
