Benefits of Portfolio Management Services

Portfolio Management Services or PMS offer sophisticated investment solutions to help investors achieve their financial objectives.

Let’s break it down for you.

In this article, we will cover:

• Overview: Portfolio Management Services
• Investment & Fee Structure
• How PMS Works
• Benefits of Portfolio Management Services

If you are looking to invest in PMS, then you can check out the full bouquet of PL’s PMS offerings here.

Overview: Portfolio Management Services:

A portfolio is like a basket of goods containing different items or different financial instruments like stocks, bonds, cash etc. This basket of goods can be held by individuals, institutions, organisations, and so on.

When goods are bought, some money is spent by the individual. Similarly, when buying financial instruments, some money is put into it or invested in these instruments. Naturally, some return is expected for what we invest, just like we expect some use from the goods we buy.

For this, the instruments must be managed just like goods have to be used in a certain way. These services are known as Portfolio Management Services (PMS) and are headed by portfolio managers as they have extensive knowledge on the matter and are specialised in managing these portfolios.

To sum up, a portfolio is a collection of financial instruments held by individuals, institutions and so on. The service rendered to manage these portfolios and get the highest return possible keeping in mind the various requirements of the individual is known as Portfolio Management Services. It is headed by a portfolio manager along with the help of a broad research team backing the decisions taken by the portfolio manager.

For more details on the types of PMS, read our previous blog here.

Investment & Fee Structure:

PMS are specially tailored for High Net Worth Individuals (HNIs). One of the reasons for this is that the minimum investment for a PMS as fixed by SEBI is INR 50 lakhs. This money can either be given from a bank A/c or one can also produce securities worth INR 50 lakhs which can then be used for investment.

Not every investor would be comfortable parking such a large amount in one place. Therefore, while PMS Fund Managers have an investable universe, they also ensure certain customisations for HNIs to suit their goals, risk appetite and willingness to take upon the risk.

Some PMS’ also have an Investment Committee which aids the Fund Manager with investment decision-making. Any idea or entry/exit decision needs the ultimate consent of the IC or the Investment Committee. It is like an extra layer of ensuring quality in investment decisions taken for the clients.

And what do you pay for it? You either pay a fixed fee or a performance fee or a combination of both. In some cases, PMS’ give you the option to choose your own fee structure from a list of options available.

How PMS Works:

Now that we have understood what Portfolio Management Services (PMS) mean, we can look at how it works.

The investor enters into an agreement with a Portfolio Manager regarding the PMS they want to invest in. A demat and bank account must be opened by an individual to be able to invest in a PMS. The shares are transferred to your demat account, and the dividend earned goes to your bank account. This indicates that you are an “independent owner” of the stocks.

The portfolio manager also provides you with evaluation report about the performance of your PMS. The frequency is decided by the investor and manager.

When it comes to taxation of a PMS, it is calculated for every stock separately as the transactions are done from the personal demat account of the investor and is therefore treated as normal buy-sell transactions.

PMS offers both customisation and the potential to earn higher returns. You can choose a PMS strategy that aligns with your financial needs.

With PL, you can invest in both active and passively managed PMS’. You can either choose from a curated list of third-party PMS, or also explore PL’s in-house strategies, designed by a dedicated and qualified team of 20+ specialists ranging from economists, fundamental & technical analysts, python programmers, macro & risk analysts, statisticians, and financial engineers. The team has launched differentiated multi-asset and equity strategies that combine PL’s 80 years of experience with cutting-edge quantitative technology. Take for instance AQUA, a quant-based flexicap PMS that offers India’s first style adaptive and style agnostic strategy.

Since its June 2023 launch, AQUA has quickly become a trailblazer in the industry. With its dynamic multi-factor approach, sector and theme rotation, and adaptive investment style, AQUA has consistently outperformed benchmarks and peers. For more details on this path-breaking PMS, click here.

Benefits of Portfolio Management Services:

• Customisable – One of the most convenient features of a PMS is the fact that it can be customised according to the shares, sectors and/or asset classes that the investor is interested in. This ensures that the goals and objectives of the investor are met as accurately as possible. Investments are also made within the risk appetite of the investor which further safeguards the investment.

This feature is not available for mutual funds. An investor cannot choose what they want to invest in specifically; when they invest in a mutual fund, they own a unit of only those shares that are a part of the fund.

• Transparency – As per the SEBI regulations, the investor is always informed of every transaction that takes place in a PMS along with the cost structure. The investor gets a report on the returns of the PMS along with the benchmark value so that the performance over time can be tracked by the investor.

In fact, the reporting standards will only improve from here on. Full transparency is always maintained. Whereas, in mutual funds, the investor is not informed about every transaction; they only get a monthly report which gives them an insight into the mutual fund. Also, unlike PMS, in mutual funds you do not own the stocks directly. You only own a unit of the share in the fund.

• Redemption – When an investor invests in a mutual fund, the money is pooled together in one place because of which any investor pulling money out of the fund or adding money in the fund would have an impact on the investors who are already a part of the fund.

For example, when the market corrects and there is an inflow of funds, it is a positive sign for existing investors. But when the money is pulled out of the fund, it is a downside for existing investors. On the contrary, for PMS, the activity of another investor has no impact on the portfolio of any other investor as every investor has their own demat account to maintain their investments and everything is handled separately.

• Get Better-than-Benchmark Returns – Many times, ex-Mutual Fund Managers start their own PMS. So, there is enough investment experience and track record to back these Fund Managers. In fact, PMS as a structure gives the fund manager the flexibility to ensure he/she beats the benchmark. Since the fund manager is also the owner of the PMS, he/she will also take ownership and perform better. Hence, the chances of you as an investor getting better-than-benchmark returns or alpha increases.

• Portfolio Manager is Accessible – PMS is a customised service that is provided to an investor. The portfolio manager keeps in touch with their clients and keeps them informed of the latest developments. The client can freely approach the manager regarding any concerns or queries he/she may have. There is no bias involved. Every client is treated equally. In Mutual Funds, it does not work like this. Investors cannot just approach the manager whenever they please. It is possible only for investors who have invested a very large sum of money in the fund.

• Governed by Regulations (Safety) – PMS is one of the most well-regulated investment options after Mutual Funds. The SEBI has proposals in place that make PMS more straightforward and investor-centric with regulated offerings. Safety is the least of the investors worry when it comes to PMS. Just like for MFs, the SEBI has made sure that PMS is as safe as possible.

• Regular Monitoring– With a whole team backing up a PMS, it is easier to monitor an investor’s portfolio and keep a track on the returns and benchmark returns. Therefore, the decisions taken are more informed and accurate and the chances of earning a greater profit increase.

So, these are some of the key benefits of Portfolio Management Services. With the right guidance, you as an investor can always find the right PMS for your portfolio. For more in-depth information or any queries regarding PMS, please click here.