Understanding Portfolio Management Services

New Delhi: Portfolio Management Services (PMS) offer customized investment solutions through – professional portfolio managers to create wealth for you.

However, not everyone is clear on how PMS works, what are the types of PMS and other critical aspects one should know before making an investment decision. In this article, we help you understand Portfolio Management Services in detail.

What is PMS?

PMS enables you to invest in a diverse range of assets such as equities, fixed income securities, and mutual funds, all under the expert guidance of a professional fund management team.

Unlike mutual funds, PMS provides a unique, individualized investment strategy, tailored to your specific financial goals and risk tolerance.

Types of PMS 

PMSes can be broadly classified into 3 categories:

1. Discretionary PMS: In this PMS, the portfolio manager has the complete discretion to make investment decisions on behalf of the investor. You entrust the manager with the responsibility of making timely and strategic investment decisions, without needing your approval for each transaction.

2. Non-Discretionary PMS: Here, your portfolio manager suggests investment ideas, but the final decision lies with you. Once you give the go-ahead, the portfolio managers take the appropriate action on your behalf.

3. Advisory PMS: This is a more collaborative approach where the portfolio manager provides investment advice tailored to your financial goals and risk tolerance, but the execution of the trades is done by you.

The choice of PMS depends on your personal preference, investment knowledge, and the level of trust and comfort you have with your portfolio manager.

The growth story of PMS in India

The growth of Portfolio Management Services (PMS) in India has been remarkable. 

Over the past seven years, the total AUM in the PMS industry has nearly tripled, rising from INR 10.45 lakh crores in March 2016 to nearly INR 28 lakh crores in March 2023.

Journey of PMS in India

1993: SEBI introduces regulations for PMS, marking the formal inception of these services in India.

2006: SEBI established strict guidelines for education and experience eligibility criteria to become a qualified portfolio manager.

2012: The minimum investment limit for PMS is raised from INR 5 lakh to INR 25 lakh.

2020: SEBI further increases the minimum limit of PMS to INR 50 lakh.

2022: The PMS industry AUM is predicted to surpass INR 30 lakh crores by 2025 if the current growth rate is maintained.

The growth of the PMS industry is due to 

-Increasing net worth and capital amongst Indian investors 

-Access to expert PMS 

-High risk appetite of investors.

PMS v/s AIF v/s MF

Each of these investment avenues caters to different types of investors and comes with unique characteristics. Here's a brief comparison:

PMS (Portfolio Management Services):

-Min Investment: INR 50 Lakhs

-Instruments: Equities, Fixed Income, Debt, Cash, Structured Products

-Transparency: High

-Liquidity: Low to Moderate

-Risk: High

-Investor Type: HNIs (High Net Worth Individuals), Institutional Investors

AIF (Alternative Investment Funds):

-Min Investment: INR 1 Crore

-Instruments: Private Equity, Venture Capital, Hedge Funds, Real Estate, Commodity derivatives

-Transparency: Low to Moderate

-Liquidity: Very Low

-Risk: High

-Investor Type: Sophisticated Investors, HNIs, Corporates

Mutual Funds

-Min Investment: INR 100 - INR 5000

-Instruments: Equities, Debt, Money Market Instruments, Other Securities

-Transparency: High

-Liquidity: High

-Risk: Low to High (depends on the scheme)

-Investor Type: Anyone

Now, let’s come to the most important question – Are PMS the right investment vehicles for you?

Investing in PMS is best suited for investors who seek customized strategy and are comfortable with a higher risk-return trade-off.

Who can invest in PMS: 

-Resident Indians, Non-Resident Indians (NRIs), or Persons of Indian Origin (PIOs).

-The minimum investment amount for PMS is INR 50 lakhs.

-Institutional investors such as banks, corporate bodies, partnership firms, and HUFs (Hindu Undivided Families) can also invest in PMS.

Now, let’s understand the pros and cons to help you analyze if PMS as an investment avenue suits you

Pros:

-Customized Portfolios: Tailored to specific financial needs and goals.

-Expert Management: Managed by qualified and experienced portfolio managers.

-Transparency: Detailed reporting of portfolio holdings, transactions, performance, fees, and charges.

Cons:

-High Minimum Investment: Requires a minimum investment of INR 50 lakh.

-High Fees and Charges: Personalized services lead to higher fees and expenses.

-High Risk: May invest in concentrated or illiquid stocks, leading to high volatility.

Conclusion

PMS offer a unique and personalized approach to investing, making them an appealing choice for investors.

However, like all investment avenues, they come with their own set of risks. It's crucial to understand your financial goals, risk tolerance, and investment horizon before diving into the world of PMS.