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Portfolio Management Service (PMS)

 

This article defines Portfolio Management Service (PMS), and talks about its advantages. It also presents a comparison between PMS and Mutual Funds (MFs).

 

We need help for investment

Most of us need the help of experts while investing in stocks. Taking help from experts is advisable, as we usually lack the expertise and time needed to invest directly in equities.

(Read “Direct investment in Stocks versus Mutual Funds (MFs)?” for more details)

The easiest way to get expert help is to use Mutual Funds (MFs). They aggregate money from many small investors, and collectively invest it on their behalf.

 

What if you need personalized help?

But this also means that they adopt a one-size-fits-all approach. Of course, there are many MF schemes to choose from, each having its own investment philosophy. But still, once you choose a scheme to invest in, you are part of a big crowd.

So, what if you have a large corpus to invest, and need specialized attention? Don’t you think you deserve more attention when you are putting up a large sum of money to invest? Is there any option available to a “large” investor?

Yes, there is – and it is called Portfolio Management Service (PMS). If a mutual fund (MF) is a fast food outlet serving standardized offerings, a Portfolio Management Service (PMS) is a gourmet restaurant!

 

Minimum investment needed for Portfolio Management Service (PMS)

PMS is meant for relatively large investors – people having a portfolio substantially larger than the average investor. Securities and Exchange Board of India (SEBI) stipulates the minimum investment required for a Portfolio Management Service (PMS) to be Rs. 5 Lakhs.

And this is the minimum – most large brokerage firms offering PMS have a minimum investment limit ranging from Rs. 25 Lakhs to Rs. 1 Crore. Of course, there are some firms offering PMS for an investment of Rs. 5 Lakhs, but these are smaller firms, and remain on the sidelines. So, Portfolio Management Service (PMS) is meant for large investors!

(The PMS scenario is changing rapidly, and even large companies have started offering PMS with very low investment limits. For more on this, please read “Reliance Money to introduce PMS for the masses“)

 

Personalization of service by PMS

And what special treatment do you get as a large investor?

The biggest advantage is that the investments are tailored to your needs. The degree of tailoring varies among firms – it can range from some customization of a standard portfolio, to fully customized investments. It is worth noting that the degree of customization usually goes up with the minimum investment stipulated by the PMS provider!

The customers of a PMS also usually get a dedicated portfolio manager. This means that you always have someone when you need to talk about your portfolio. And unlike the helpline of a Mutual Fund (MF), you always talk to the same person when it comes to your investments. It’s like having a family doctor for your investments!

While most PMS providers make investments purely based on their research and the judgment of their portfolio managers (Discretionary PMS), some PMS providers do let the investors have some degree of direct control over their investments (Non-Discretionary PMS). In non-discretionary PMS schemes, investors can advise their portfolio managers about which stocks to include in their portfolio.

Portfolio Management Service (PMS) investors also get customized, real time reporting. PMS providers provide web based reporting tools using which PMS investors can monitor their investments and their performance. This is a big advantage compared to MFs, which declare their investments only once every 3 months.

 

Portfolio Management Service (PMS) Charges

So, what do you pay for this special treatment?

The fee structure of PMS is different from that of MFs. For MFs, you pay a fixed yearly fee as a percentage of your investment, irrespective of the scheme’s performance.

In PMS, fee usually has two components – a fixed yearly component, which is a percentage of your investment, and a performance based component. This performance based component is charged as a percentage of the profits generated for you. This means that it would be more if your portfolio gives a good return, and it would be less if your portfolio doesn’t give a good return.

Of course, the PMS scene is changing rapidly, and competition is heating up. This means that now, bigger companies are willing to offer Portfolio Management Service (PMS) with a lower minimum investment. Competition has also resulted in the fee structure being changed – now, there are companies that charge purely based on the portfolio’s performance, with no fixed charge!

(For more on this, please read “Reliance Money to introduce PMS for the masses“)

No wonder Portfolio Management Service (PMS) is growing faster than many mutual funds!

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