Portfolio Management Services (PMS) are emerging as a distinguished avenue for high-networth individuals (HNIs) looking for customised investment solutions.

In this blog, we delve into PMS, their investment philosophy, and things to keep in mind while investing in PMS products.

What are Portfolio Management Services?

PMS are professional investment advisory services, with a minimum ticket size of Rs 50 lakh, typically catering to HNI investors.

The portfolios are tailored based on investors’ financial goals, risk tolerance & time horizon.

PMS services are offered by SEBI-registered portfolio managers who curate customised investment strategies & manage portfolios on clients’ behalf.

What is their investment philosophy?

PMS often adopt distinct investment philosophies for various asset classes, such as:

Equity

Equity portfolios are diversified with the aim of generating alpha,

i.e., outperforming the benchmark indices like Nifty or Sensex.

Investments are made following various criteria such as:

Market capitalisation: Large, Mid, Small, Multi-cap

Style: Growth, Value, Contra

Debt

Debt portfolios invest in fixed-income securities with the aim of providing regular income.

Multi-Asset

Multi-asset portfolios invest in different asset classes, like equity, bonds, real estate, etc, to provide portfolio diversification.

What is the role of the Portfolio Manager?

Investors can decide on the portfolio manager’s role by analysing his/her experience and the services offered, such as:

Discretionary

Investment decisions and trade executions rest solely with the portfolio manager.

Non-Discretionary

The portfolio manager only suggests investment ideas and helps execute the trades.

Advisory

The portfolio manager only suggests investment ideas, while the selection and trade execution rest solely with the investor.

What are the benefits of PMS?

Flexibility

The portfolio manager has the flexibility to hold the cash for suitable investment opportunities based on market conditions.

Transparency

Communication, performance & capital gain reports are shared periodically.

Risk Management

The focus is on diversifying the risk involved in dynamic market conditions.

Continuous Monitoring

Periodic actions are taken as portfolios are actively managed.

What are the drawbacks of PMS?

PMS charge higher fees & exit load compared to other investment options.

They charge fixed AMC fees + variable fees based on the portfolio’s performance.

The variable fees are levied when the portfolio achieves a predetermined threshold return.

It is also important to note that not all PMS may outperform the benchmark indices, and returns are not guaranteed.

Conclusion

Investors can select a well-suited portfolio management service depending on their knowledge of capital markets, asset classes, long-term financial goals & risk tolerance profiles.