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Portfolio management services (PMS) are provided to high-net-worth individuals with an aim to obtain good returns with appropriate risk. The portfolio manager oversees the portfolio to meet the long-term objectives of the client, company, or institution. The opportunities are explored across a spectrum of investments and the portfolio can include stocks, commodities, fixed income, real estate, etc.
The portfolio manager could be a person or a group of persons responsible for making investment decisions. They have vast experience in financial management and could be brokers, experienced investors, or traders with a good track record. The portfolio is managed to take into consideration the risk profile of the investor, the taxes applicable, and the time horizon. A separate Demat account is created for every investor and the portfolio manager is provided with the power of attorney to transfer stocks from the account.
The types of portfolio management services are-
1) Discretionary Portfolio Management-
Discretionary portfolio management means that all the decisions are made at the portfolio manager’s discretion. The portfolio manager is free to adopt any investment strategy suitable for the portfolio and is in complete control of the portfolio. It is ideal for clients with a busy schedule who can’t actively track the markets and hence the performance results of their investment. The portfolio manager can invest the funds of his clients in the securities traded on a recognized stock exchange, mutual funds, and money market instruments.
2) Non- discretionary Portfolio Management-
In the non-discretionary portfolio management scheme, the portfolio manager suggests investment ideas. The investor is responsible for the choice and timing of the investment and the execution is done by the portfolio manager. The portfolio manager may invest up to 25% of the money of client in unlisted securities like units of alternate investment funds, real estate investment trusts, infrastructure investment trusts, debt securities, and shares and warrants not listed on the recognized stock exchanges of India.
3) Advisory Portfolio Management services-
In the advisory portfolio management services, the portfolio manager only suggests the ideas while the choice and the execution of the ideas lies with the investor.
Some of the best Portfolio management services in India are-
- Motilal Oswal PMS.
- ASK PMS.
- Kotak PMS.
- ICICI Prudential PMS.
- Birla Sunlife PMS.
- Alchemy PMS.
- Invesco PMS.
Advantages of Investing in PMS-
- Professional Management-
There is professional management having good administrative and investing skills looking after the portfolio always trying to provide good returns over the long term while keeping the risks under check.
- Building of quality portfolio-
The aim of the PMS is to build a quality portfolio and invest in good-quality stocks. When the investors themselves invest in stocks they tend to search for stocks that are cheap in value and in the process compromise on the quality. They don’t realize that the stock is cheap as it may have some corporate governance issues. Many a time they lose their whole investment in some of the penny stocks.
The portfolio managers do thorough research on the stocks, study the balance sheets and meet the company’s management before making any investment decision.
- Continuous Monitoring of Portfolio-
The common investors are either busy in their professions or business and don’t monitor their investment portfolio regularly while the portfolio managers monitor the results of the company and the performance of the sector and the stock. Those companies that don’t deliver on financial parameters and corporate governance are weeded out of the portfolio.
- Independent Portfolio-
The mutual funds pool the money collected from the investors and invest in stocks. The portfolio of a mutual fund can be affected by the herd behavior of the investors. The investors most of the time invest in rising markets and panic and sell in falling markets. Due to this the fund managers may have money during rising markets and may have to invest during that time. The PMS portfolio of every investor is separate and the investment behavior of some investors does not affect the portfolio of others.
- Risk Management-
There is a research team for looking after the client’s investment strategy and provides the portfolio manager real-time information to back it.
- Top Up Option-
There is an online top-up option provided by the PMS. The minimum threshold in a PMS is Rs. 50 lakh and a SIP option are provided when the investor plans to invest more than this minimum amount. The minimum top-up varies with strategies and across different PMS.
The SIP is paperless and the investor would be made aware of the high-quality stocks, which he can always purchase. During the market correction if one purchases stocks it is beneficial to the investor.
- Transparency of investments-
The PMS provides all the details on the performance of the portfolio through regular communications like the statements and the updates. The investor can see his portfolio and the account statement with the complete details of the securities he holds on the web access platform provided by the PMS Company. The details included are the portfolio performance in relation to the benchmark, asset allocation, value of the securities held, and the information on all the sales and purchases.
- Possibility of superior returns-
There are many PMS schemes that generate more returns than mutual funds. Since the mutual funds are for the masses they are regulated with many guidelines for the fund managers and the AMC. In the PMS there is no such compulsion for the maximum exposure to stock and the portfolio manager can hold a concentrated portfolio as long as they are getting good returns.
Minimum investment in PMS-
The minimum investment required for a PMS is Rs. 50 lakhs. This may be done with a view to keep the retail investors’ participation to a minimum to ensure their financial security and allow people with a better understanding of the PMS and having a high-risk appetite.
Taxation of the PMS-
The taxation in PMS is the same as investing directly in stocks as the investments are held directly in an investor’s name. If held for more than a year it is long-term capital gains which are exempt up to Rs. 1 lakh and the balance amount taxed at 10% while if held for less than a year it is short-term capital gains that will be taxed at 15%.
Fee charged by PMS-
The fee charged by the PMS ranges from 1-3% per annum of portfolio value and some portfolio managers have fees on additional PMS returns which includes profit sharing.
Difference between a mutual fund and PMS-
Many people are busy in their business and professions and in the investment field, it is not so easy to generate good returns. It requires knowledge, experience, research, and regular monitoring of the investments. People have to take accurate decisions which may be a little difficult if they are busy the whole day in their profession. Due to this, it is better for individuals to let the professionals handle their investments, and the portfolio management services are a good choice where experts manage the portfolio.