PORTFOLIO MANAGEMENT SERVICES

With the increase in network connectivity and internet services in India, financial awareness is also increasing and today, every one in two-person understands the importance of financial planning. But only knowing the importance is not enough because whenever an investor wants to invest in the market, he needs to have certain knowledge and skills. This is where portfolio management services come into play. Before coming towards the PMS we will discuss what is actually meant by portfolio management and further in this article, we will talk about the objectives, benefits, types, and other important aspects.

WHAT IS PORTFOLIO MANAGEMENT?

Portfolio management can be easily compared with baking the best cake for your appetite, by mixing perfect elements in an adequate amount. This means that the PMS is managing the portfolio of an individual skillfully and tactfully by selecting the perfect combination of investment options in adequate amount and proportion. Not only this, these combinations and proportions can also be changed on a continuous basis so as to get maximum benefit.

WHAT IS PMS?

Portfolio Management Service is a process that assists in portfolio management and investment analysis. In this, the portfolio is given to investment and finance professionals who have a vast knowledge of the financial markets and are capable to understand the investment goals and the risk appetite of the investor. The management entity or person does all the needful research and analysis about the stocks and takes a decision about the allocation of the funds in return for a fee. These service providers keep the investors in the loop about all the changes and developments made in the portfolio. Most of the investment advisories and brokerage firms can be seen offering these services with different features and benefits. This can also be called an all-around 360-degree service as the investor has to do nothing and is free from all the stress of his financial planning and investment.

This is also one of the reasons these services became so popular. In India, very few people have the required skill set to analyze and research stocks and invest. Even if they want to learn this skill, they can’t do it conveniently because either they are working professionals or businesspeople having a lot to do already by their side. PMS frees the investor from all the complexities and formalities by providing them hassle-free services. The investor doesn’t need to worry about the impact of economic, business, and political news on the market as his funds are being managed by professionals.

Prior to 1993, these services were unregulated but as this started to gain popularity, SEBI felt the need to introduce rules, regulations, and mandates in this field to enhance the safety of investors’ capital and the answerability of the managers. Mostly this service is opted by High Networth Individuals as the minimum investment threshold for a trader or investor has been capped at Rs. 50 Lakhs by SEBI.

TYPES OF PORTFOLIO MANAGEMENT SERVICES

There are 3 types of portfolio management services:

1. Advisory:

In this, the PMS managers and professionals advise the investors and assist them to make informed decisions regarding investment decisions and opportunities. The final trade is executed by the investor only.

2. Discretionary:

In this, the PMS has complete authority and control of the funds i.e. portfolio of the investor. They don’t have to ask and inform every trade or development to investors. They can buy, sell, strategies according to them.

3. Non-Discretionary:

In this, the principle of PMS is defeated because the investor is given more liberty and has a say in all the portfolio activities. It is also considered counterproductive as despite having the complete knowledge and skill set, professionals have to consult with the investor and take his advice into account before taking any significant calls and decisions.

OBJECTIVE OF PMS

1. Diversification:

This can be considered as a prime reason why investors opt for PMS. They provide the proper diversification as per the risk appetite and nature of the investor.

2. Capital Growth:

A Professional Portfolio Manager always looks for the best investment opportunity that can help the investor’s capital grow as this is the core responsibility of the manager or PMS.

3. Tax Planning:

Professional management of the portfolio offers to assist in the tax-saving phenomenon wherever possible.

4. Growth Potential:

As PMS are offered by professional and skillful people, there is high growth potential in the long term than the funds will grow and outperform the market.

5. Sectoral calls:

PMSs also aim to benefit from momentum in a particular sector by increasing the holdings in that particular sector or industry after the movements in the stock market. For instance, if the manager after doing the needful research feels that the IT and Pharma sector can outperform in the coming two years, he will invest more of the funds in these sectors.

CHARGES IN PMS

The biggest concern while opting for portfolio management services is its charges and fees. There are three major components of charges and fees namely an Upfront fee, a Management Fee, and a Performance Fee. Let us discuss some of the different charges which an investor may incur:

1. Entry Load:

This is the initial charge by PMS where they charge an entry load of around 2% to 3% which is charged at the time of buying the PMS only.

2. Exit Load:

If an investor redeems the investments before the minimum investment period, then the exit load is levied.

3. Fixed Fee:

It is the flat fee being charged by the PMS provider on yearly basis. This fee is decided on the basis of the portfolio to be managed or corpus/assets to be handled and are pre deducted from the fund.

4. Performance Fee:

This is the most general and common fee charged. In this, the PMS provider charges a certain flat fee which is fixed, and as for a certain amount of fee or percent of profit over the stipulated returns generated.

BENEFITS OF PMS

Transparency:

An investor is also concerned about the correct use of his funds. In PMS, perfect transparency is maintained as every investment decision taken would be conveyed along with detailed reasons keeping the investor up to date on any development or change.

2. Customization:

The PMS professionals can conveniently modify and customize the portfolio investment based on financial goals, return expectations, and investor’s risk tolerance.

3. Well-researched decision:

PMS provides a well-researched, scientific and disciplined basis for investing which is backed by professionals having the required expertise and skill set.

4. Performance Tracking:

Most PMSs have a great infrastructure that facilitates an investor to track the holding in real-time on an app or website.

5. Learn while you earn:

Along with the sound management of the portfolio fund of the investor, these services also help an investor to improve the financial understanding. Continuous updates and discussions regarding the strategies and decisions made help an investor to understand the technicalities and complexities.

6. Liquidity:

PMS isn’t much liquid and even if you opt for withdrawal a heavy exit load is levied upon your funds.

TOP PMS IN INDIA

Here are Top 5 Portfolio management services from which you can opt for:

Ask PMS
Motilal Oswal PMS
Kotak PMS
ICICI Prudential PMS
Aditya Birla Sunlife PMS

Nevertheless, it is always better to consult a financial advisor and do the needful research before opting for any PMS.

THE CRUX

PMS, like any other investment form, comes clubbed with the factor of risk. All the risks and factors are clearly stated in the T&C documents of the entity and are explained in detail while applying. It is always important to do the needful research, study all the documents, understand the technicalities and then make a sound decision.