Portfolio Management Service (PMS) is a custom-made professional service offered by a portfolio manager with the investment objective of different investors. Portfolio management is the art and sciences of selecting and overseeing a group of investments across asset classes like equity, debt, commodities, and cash that meet the long-term financial objectives and risk tolerance of the investors. Unlike mutual funds, the ownership of securities lies with the investor and managed by a professional manager.

PMS is an alternative to investors who are looking for investment into direct equity, as financial markets complex to understand and investing in financial markets and direct equity investment requires market knowledge, proper research and analysis, regular monitoring with lot of time consumption for investors.

Why Portfolio Management Services?

  • Professional management
  • Ease of transactions
  • Personalized approach
  • Periodic review and rebalancing
  • Transparency

Discretionary portfolio management is the one where an investor gives the flexibility to the fund manager to manage the securities in the portfolio. While the individual goals, risk appetite and timeframe are taken into consideration, the manager adopts an appropriate strategy that he thinks is the best suiting the investment policy statement. In this, the investment is at the discretion of the fund manager and the client has no intervention in the investment process. Once the cash has been handed over to the professional, the investor sits back and trusts that the profits will roll on.

Non-discretionary portfolio management is the one where a portfolio manager acts as an advisor or as a financial counselor. He simply gives investment ideas to clients and the clients have full right to take investment decisions.

Active portfolio management is aimed at making better returns than overall markets. Majorly, a fund manager follows the contrarian approach in active management. Active portfolio management involves quantitate analysis of companies to evaluate the real value of stock in relation to its potential. For the same, the fund manager keeps away from efficient market hypothesis and relies on ratios to support his claim. Gains in active portfolio management majorly depend on fund manager skills.

Passive portfolio management is the opposite of active portfolio management. In passive portfolio management, the fund manager believes in the efficient market hypothesis. In this the fund manager focuses on fundamentals of a company for stock price reflection. The turnover in portfolio is relatively lower than in the case of an actively managed portfolio, and good for long-term worth.

  • Portfolio management deals with the investment in different asset classes like equity, debt, cash and other assets too. For the same, one should have good market knowledge, proper research and analysis, and regular monitoring. Portfolio management helps investors with professional management by experienced fund managers.
  • Individuals focus on price for short term gains rather than value for long term gains. Portfolio management services help in building quality portfolio through profession management.
  • Portfolio management helps in building and managing portfolio at client level, it means each client portfolio is treated separately in view of the individuals’ risk appetite and goals. Hence, experiences of other investors will have no impact on one person’s investment.
  • Portfolio management services aims to maximize returns in the long run for wealth creation by investing in marketable securities with proper risk diversification.
  • Most of the portfolio management services build portfolio in equity asset class, as we know equity market is volatile and carry high risk factor in case of high value assets. The fund managers are well experienced and manage portfolios by diversifying the risk.
  • Even though portfolio management services are recommended for long term investment, they offer liquidity to exit any time in case of emergencies. Exit load is applicable as per the service provider, based on holding period.
  • Portfolio managers do portfolio rebalancing to maximize the returns by reducing risks when you do not get expected returns from the portfolio because of market fluctuations.
      1. Even though it is beneficial investing in portfolio management services, as the same is governed by SEBI to maintain good governance and lower fraud, a minimum capital of 50 Lakhs must be invested in PMS.
      2. Being a customized product and managed at client level with the investment objective unlike mutual funds that are managed in pooled trust accounts, the expenses of PMS products are little higher.

Management fee can be 2.5% per annum and 0.5% are operational expenses per annum. There is no upfront or setup fee in PMS as per the recent guidelines by SEBI.

      • PMS does not assure any returns and the total investment risk is borne by the investor.
 

PMS is managed by experienced professionals at client level; taxation would be done at client level. PMS Service provider will share capital gains or loss statement at the end of every financial year, with all the transaction details, short term and long-term capital gains or losses in different asset classes. One needs to consult a charted account or a tax consultant with the statement given by PMS Service provider to file income tax returns with the right tax calculations.