Things to Remember When Investing in PMS

A Portfolio management service (PMS) is a wealth management service offered by financial institutions to HNI Investors who want to invest in different asset classes, primarily equities and bonds. They are customised financial advisory services where investors get the benefit of higher returns as compared to traditional mutual funds due to the PMS fund manager’s flexibility in investment decisions.

While a PMS offers several benefits such as customised portfolio management, easier access to the fund manager, greater flexibility in choosing assets to invest in and better returns; there are few points that must be noted before signing a PMS agreement:

• Portfolio investment strategy

The basic advantage of a PMS is to offer avenues for investment in niche asset classes which have high growth potential, and which would not have been possible with traditional mutual fund investments. As such, every PMS has its own investment strategy and model for portfolio allocation. These may not always match every one of the PMS investors’ requirements.

• Portfolio risk and concentration

While mutual funds typically invest in a broad spectrum of a diversified portfolio of equities and bonds, PMS runs a more concentrated portfolio of about say 20-25 stocks and a few bonds. This concentrated portfolio increases the potential for higher returns from the PMS fund, but it also increases the underlying risk. Standard deviation for PMS portfolios is typically 65% – 70% higher than that of mutual funds.

With PL, you get access to a diverse range of PMS – both actively and passively managed. Get in touch with PL’s qualified professionals to get expert guidance on the right investments for your portfolio. Click here for more details.

• Fees and charges

While the expense ratios for mutual funds range between 2.5% and 3.25%; the fee for a PMS includes a fixed component along with a performance fee by way of profit share. This variable component decreases the overall ‘alpha’ return from the portfolio for the investor.

• Transparency and disclosures

While mutual funds are required to disclose performance history, top portfolio composition, etc., transparently by the regulator, there are few such requirements mandated for PMS funds also.

PMS schemes offer a wide range of attractive features and promises for returns, but they also have certain risks which only sophisticated wealthy individuals can tolerate. Even these investors must carefully consider their options before taking an investment decision.

If you are looking to invest in PMS’, then you can check out the full bouquet of PL’s PMS’ offerings here. In India, PL is among the pioneers of quant investing. PL’s in-house team has developed industry-first, quant-based strategies like AQUA and MADP.

AQUA is India’s first style agnostic and style adaptive PMS, which generates alpha by design, not by chance. This quant-based, flexicap, equity PMS has the potential to truly redefine wealth creation. For more details on this strategy, click here.