Portfolio Management Services

What are Portfolio Management Services (PMS)?

PMS or Portfolio Management Services is a licensed and professional investment service offered to cater to the objectives of niche segment of long term investors.

The PMS industry in India is regulated by the Securities and Exchange Board of India (SEBI), which sets the guidelines and requirements for PMS providers to operate in the country. SEBI has prescribed a minimum investment corpus of Rs 50 lakh for individuals to be eligible for PMS services.

Portfolio management services (PMS) are offered by specialized financial companies to manage the investment portfolio of high net worth individuals (HNIs), UHNIs, NRIs, or institutions.

PMS providers invest on behalf of their clients in a customized portfolio of stocks, bonds, mutual funds, and other securities based on the clients’ investment objectives and risk tolerance. The PMS providers charge a fee for their services, which is typically a percentage of the assets under management (AUM).

PMS providers in India offer various types of portfolio management strategies, including value investing, growth investing, income investing, and quantitative investing, among others. They provide regular updates and performance reports to their clients and aim to achieve superior returns on their clients’ investments while managing risk effectively

Types of Portfolio Management Services (PMS)

1. Discretionary PMS

In this type of PMS, the portfolio manager has full discretion to make investment decisions on behalf of the client. The manager chooses the securities to invest in based on the client’s investment goals, risk appetite, and other factors. The client does not have to approve each investment decision, but they receive regular reports on the portfolio’s performance.

2. Non-Discretionary PMS

In this type of PMS, the portfolio manager makes investment recommendations to the client, but the final decision on which securities to invest in rests with the client. The portfolio manager provides research and analysis to the client to help them make informed investment decisions.

3. Advisory PMS

This type of PMS is similar to non-discretionary PMS, but the portfolio manager only provides investment advice and does not execute trades on behalf of the client. The client makes all investment decisions and executes the trades through their own trading account.

image

The difference between successful people and really successful people is that really successful people say no to almost everything. –Warren Buffett

The above quote explains how PMS and AlFs are different from Mutual funds. PMSs focusses on a few selected companies and says no to the rest, whereas Mutual funds are made to follow too diversified approach because these are products meant for the masses. Though this helps mutual funds in reducing volatility to an extent, but more doesn’t always mean low risk, and in fact, exposure to more companies may increase the risk of buying less known. Also, high diversification beyond a point comes at a cost of limiting potential long term performance as in general, most mutual funds hold 40 -70 stocks making it no different than an index.

Portfolio Management Services V/S Mutual Funds: A Comparison

We, at PMS AIF WORLD, have done a comparison of PMSs and Mutual Funds several times and here we present a simple analysis to address some real questions asked by investors – Where should you invest – Portfolio Management Services (PMS) or Mutual Funds (MF)?

Check out the comparison & results by clicking on the below link(s):

Portfolio Management Services (PMS) vs Equity Mutual Funds (MF) – Detailed Score Card (Data as of 31.03.2024)
Portfolio Management Services (PMS) vs Equity Mutual Funds (MF) – Detailed Score Card (Data as of 30.09.2023)
Portfolio Management Services (PMS) vs Equity Mutual Funds (MF) – Detailed Score Card (Data as of 31.03.2023)

Features of Investing through a Portfolio Management Service (PMS)

1. Concentrated, and Focused

PMS strategy is meant to invest in a concentrated basket of 15-25 well-researched companies. Such a focused approach generates superior long term performance and is meant for sophisticated and informed investors who really want money to work harder for them and are focused on long term performance and, not bothered by short to medium term volatility.

2. You own your own portfolio

PMS strategy works on the concept of personal demat holding and with common research, and not a pooled stock portfolio across investors. With the rising participation of young and retail investors in mutual funds, pooled stock portfolio concept is prone impulsive and behavioural flows which rise with rising markets and peak out at higher valuations, and fall with falling markets and bottom out at attractive valuations. In PMS, one investor’s behavioural reactions to market movements doesn’t impact other investor’s portfolios.

3. Own businesses, and not units

A Portfolio Management Service, or a PMS gives access to direct shareholding in the businesses, making it a more direct method of investing. When one invest in companies, it opens the door to not only grows with the rise in corporate earnings and dividends, but also the growth of investors own intellectual capital. As here investor clearly gets to know what’s happening in the portfolio. In the long term, growth in all three matters and adds up.

4. Buy and hold, with low churn

Since PMS works with a concentrated approach, there is no compulsion to churn a stock that is performing irrespective of its rising weight in the portfolio over years. What matters is the expected earnings and growth potential in the businesses held. Unlike this, in mutual funds, beyond a point, at times fund manager may be forced to let go of a performing stock to cut its rising weight, given the regulations.

Why Choose PMS AIF WORLD?

PMS AIF WORLD offers high-quality, analytics-backed investing services with the goal of fostering prosperity and wealth. As of FY23, we have been handling 1000 CR+ in assets for more than five years, for more than 500+ UHNIs and NRIs.

But out of the almost 200 PMSs that are available – which one is best for YOU?

Our in-house QRC [Quality, Risk, Consistency] framework will help us select the PMS that will work the best for you. Each of these strategies has its own trajectory and features.

This custom framework for analysis delves deeply into the PMS performance to highlight the indicators important to you as an investor and aid you in selecting the portfolio that will best meet your investment goals. One of the best ways to gauge overall portfolio performance is via the QRC Analysis, which considers things like Alpha [outperformance compared to benchmark index], risk-adjusted returns, consistency of returns, and other similar metrics.

Visit https://www.pmsaifworld.com/best-30-pms-aif-qrc-report-cards/ for more.

Why Invest in Portfolio Management Services (PMS) in Financial Year 24-25?

As we embark on FY 24-25, we are optimistic that the market has bottomed out, and discounted all headwinds. Pls refer below data as of 31.03.2024.

Levels, Valuations, and Macros make a logical case in favour of equities as we see headwinds turning into tailwinds, going forward.

Index Levels As on 01.04.2023 As on 31.03.2024 Change
NIFTY 50 17,427.95 22,326.9 28.11%
NIFTY 500 14,621.05 20255.15 38.53%
Nifty Midcap 100 30,199 48,075.55 59.20%
Nifty Smallcap 100 9,044.95 15,270.45 68.83%
Valuations As on 01.04.2023 As on 31.03.2024 Change
Nifty 50 PE 20.75 23.1 11.33%
Nifty 500 PE 21.36 25.2 17.98%
Nifty Midcap 100 PE 21.77 34.2 57.10%
Nifty Smallcap 100 PE 16.44 27.3 66.06%

India is the largest democracy in the World. With a rich demographic diversity and a thriving stock market, India is a mix of traditional and contemporary businesses. It is today one of the most attractive destinations for investors as Indian economy embarks on a journey from a $3 trillion to a $5 trillion economy. At present, India’s GDP stands at approximately $3.4 trillion, and according to the original Buffet Indicator, which evaluates the market cap to GDP ratio, the Indian stock market appears to be fairly valued.

The ratio of total market capitalization to GDP is currently at 96.75%, with a range of 58.03% as the minimum over the last decade and 119.68% as the maximum during the same period. Despite this fair valuation, it’s noteworthy that stock markets inherently undergo cyclical fluctuations, that cause shifts between equities representing traditional and modern sectors, often accompanied by periods of heightened volatility. This is precisely the scenario unfolding at the moment.

In April 2024, Indian equities soared to record highs with Nifty50 surpassing 22k and the Sensex crossing 74k. While markets made all-time highs, those companies that benefited from government spending significantly outperformed the major indices.

The fear of a correction in the short term is valid, as some pockets of the market are in the incorrect zone owing to froth. But the best way to ride such fear & uncertainty is not exiting, but keeping greed aside and investing gradually with patience on dips. This is because we see the present scenarios as half glass full and not half glass empty and feel any short-term correction is an opportunity to invest for the long term as seeing from an optimistic lens, the Indian economy presents an environment where opportunities look highly promising over the long term.

Macro-economic indicators are strong, with almost all parameters showing strength and improvement. Elections due in May 2024 are likely to be in line with expectations. Globally, inflation has stabilized, and interest rates have peaked.

India’s growth opportunity, strong macros, and resilience could continue to attract foreign investors in FY 2024-25, after FIIs pumped in a net of $25.43 billion into Indian equities in the last financial year. This comes a year after the net outflow of about $8 billion in the previous fiscal year 2022-23.

While PE ratio is just one indicator for investment decision, but one can observe from the above tables that valuations are Fair for Large caps but high for Mid Caps and very high for Small Caps.

But despite valuations being little high, it is very interesting as earnings growth is also high.

The success in this journey is not dependent just on intellect but also on discipline, character, as well as temperament.

It’s essential to consider that some businesses within the underperforming sectors might be on the cusp of a new era marked by sustained earnings growth. This potential shift could be closely tied to the ongoing growth of the Indian economy, particularly in these core sectors.

TIME HORIZON
AVERAGE HISTORICAL RETURNS
AVERAGE HISTORICAL VOTALITY

Whom this is not meant for?

Investors seeking highest possible returns and not worried about short to medium term underperformance as looking to invest for 7- 10 year or more time horizon

TIME HORIZON
AVERAGE HISTORICAL RETURNS
AVERAGE HISTORICAL VOTALITY

Whom this is not meant for?

Investors seeking less volatile returns and looking to invest for less than 5 to 7 years of time horizon.

TIME HORIZON
AVERAGE HISTORICAL RETURNS
AVERAGE HISTORICAL VOTALITY

Whom this is not meant for?

Investors seeking less volatile returns and not looking to invest for more than 5 to 7 years of time horizon

How to Choose a Portfolio Management Services Provider?

Choosing a portfolio management services (PMS) provider is an important decision that requires careful consideration. Here are some factors to consider when choosing a PMS provider:

  • Reputation and Track Record: It is important to choose a PMS provider with a good reputation in the market and a proven track record of delivering consistent returns over the long term. You can research the provider’s past performance and read reviews and feedback from existing clients to assess their credibility.
  • Investment Philosophy and Strategy: Different PMS providers have different investment philosophies and strategies. You should choose a provider whose investment philosophy and strategy aligns with your investment goals and risk appetite. For example, if you are a conservative investor, you may prefer a provider that follows a value-based investment strategy.
  • Fees and Charges: PMS providers charge fees for their services, which can vary depending on the provider and the type of service offered. You should understand the fee structure and the total cost of investing with the provider, including management fees, performance fees, and other charges. It is important to compare the fees of different providers to ensure you are getting a competitive deal.
  • Transparency and Communication: A good PMS provider should provide regular updates on the performance of your portfolio and communicate clearly and transparently about their investment decisions. You should choose a provider that keeps you informed and involved in the investment process.
  • Regulatory Compliance: PMS providers in India are regulated by the Securities and Exchange Board of India (SEBI). You should choose a provider that is registered with SEBI and compliant with its guidelines and regulations.
  • Service Quality: Finally, you should consider the quality of service offered by the provider, including their customer support, investment research, and portfolio management processes. You can assess the service quality by speaking with existing clients or reading online reviews.

In summary, when choosing a PMS provider, it is important to consider their reputation, investment philosophy, fees, transparency, regulatory compliance, and service quality. By doing your due diligence and choosing the right provider, you can maximize your chances of achieving your investment goals.

Benefits of Portfolio Management Services

Investing in a Portfolio Management Services (PMS) in India can offer several benefits to investors, including:

  • Professional Management: Portfolio Management Services (PMSs) provide professional management of portfolios with the objective of delivering consistent long-term performance using extensive research and valuation analysis to control the risks.
  • No Behavioural flows: Portfolio Management Services (PMS) is not meant for retail investors and follows 50 lacs as min investment ticket, so the portfolio manager gets long term rational flows. Unlike this, mutual funds are prone to behavioral flows, especially with the rising participation of young and retail investors in mutual funds. MFs follow a pooled stock portfolio concept and as retail flows rise with rising markets and fall with falling markets, a mutual fund manager is forced to buy more at higher market levels. Unlike this, in PMS, each investor owns individual shares in his / her personal demat a/c, and hence one investors’ behavioural reactions to market movements doesn’t impact other investors’ portfolios. (With regular flows coming in mutual funds from SIPs, nature of mutual fund portfolio in general is bound to get skewed towards large and giant companies)
  • Focussed and Concentrated: In PMS, portfolios are more focussed and concentrated with 15 to 40 holdings, whereas Mutual funds follow too diversified approach because these are products meant for masses. With regular flows coming in mutual funds from SIPs, nature of portfolio in general is bound to get skewed towards large companies and/or more number stocks. Though, this helps mutual funds in reducing volatility to an extent, but more doesn’t always mean low risk; in fact exposure to more companies may increase the risk of buying less known. Also, high diversification beyond a point comes at a cost of limiting potential long term performance, making mutual funds no different than an index.
  • Flexibility:  The Portfolio Manager has fair amount of flexibility in terms of holding cash. Theoretically, in case of a PMS, its manager can go up to 100% in cash depending on the market conditions. Also, can create a reasonable concentration in holdings by investing disproportionate amounts in favour of compelling opportunities.
  • Transparency: Portfolio Management Services (PMSs) provide comprehensive communications, performance reporting and capital gain statements. Investors get regular statements and updates. Web-enabled access ensures that investor is just a click away from all information relating to investment.

In summary, investing in PMS can offer several benefits to investors, including professional management, customized portfolios, diversification, transparency, and potentially higher returns. However, investors should also be aware of the risks associated with PMS and conduct thorough due diligence before investing.

Risks of Portfolio Management Services

Like any other investment, portfolio management services (PMS) come with risks that investors should be aware of. Here are some of the risks associated with PMS:

  • Market Risk: PMS investments are subject to market risks, which means that the value of the investments can fluctuate based on market conditions. If the market experiences a downturn, the value of the portfolio can decline, leading to losses.
  • Concentration Risk: PMS providers may invest a significant portion of the portfolio in a single stock or a few stocks. This concentration risk can increase the volatility of the portfolio and lead to losses if those stocks perform poorly.
  • Manager Risk: PMS investments are managed by portfolio managers, and the performance of the portfolio is dependent on the manager’s skill and expertise. If the manager makes poor investment decisions or fails to manage the portfolio effectively, it can result in poor performance and losses.
  • Liquidity Risk: Some PMS investments may be illiquid, meaning that it can be difficult to sell them quickly in the market. This can be a problem if the investor needs to sell the investments to meet their financial needs.
  • Operational Risk: PMS providers may face operational risks, such as errors in trading, accounting, or reporting, which can lead to losses for the investor.
  • Regulatory Risk: PMS providers are regulated by the Securities and Exchange Board of India (SEBI), and changes in the regulatory environment can impact the operations and performance of the PMS provider.

In summary, PMS investments come with risks that investors should be aware of. It is important to understand these risks and consider them when making investment decisions. Investors should also choose a PMS provider that has a proven track record, is transparent about its investment process and fees, and is registered with SEBI.

How do Portfolio Management Services (PMS) Work – What is the general process?

Portfolio management services (PMS) in India are offered by professional fund managers who manage the investment portfolios of their clients based on their investment objectives, risk appetite, and financial goals. Here is an overview of how PMS works:

  • Client Onboarding: The PMS provider will initiate a client onboarding process, which includes a detailed discussion with the client to understand their investment objectives, risk tolerance, and financial goals. The PMS provider will also collect necessary documents and information from the client, such as PAN card, KYC details, and investment declaration form.
  • Portfolio Construction: Based on the client’s investment objectives and risk appetite, the PMS provider will construct a customized portfolio that includes a mix of equity, debt, and other asset classes. The portfolio construction process takes into consideration the client’s preferences, investment horizon, and liquidity needs.
  • Investment Execution: Once the portfolio is constructed, the PMS provider will execute the investment strategy by buying and selling securities in the market. The PMS provider may use various investment techniques, such as fundamental analysis, technical analysis, and quantitative analysis, to make investment decisions.
  • Monitoring and Rebalancing: The PMS provider will monitor the performance of the portfolio on an ongoing basis and make necessary adjustments to maintain the desired asset allocation and risk profile. The provider may rebalance the portfolio periodically to ensure that the asset allocation remains aligned with the client’s investment objectives and risk tolerance.
  • Reporting and Communication: The PMS provider will provide regular updates to the client on the performance of their portfolio, including the value of the portfolio, returns generated, and any changes made to the asset allocation or investment strategy. The provider will also communicate with the client on any market events or investment decisions that may impact the portfolio.
  • Fees and Charges: PMS providers charge a fee for their services, which typically includes a management fee, performance fee, and other charges. The fee structure and charges may vary depending on the PMS provider and the type of service offered.

In summary, PMS works by offering personalized investment solutions to clients based on their investment objectives and risk tolerance. The PMS provider constructs a customized portfolio, executes the investment strategy, monitors the performance of the portfolio, and communicates with the client on a regular basis. PMS services come with fees and charges that investors should be aware of.

How does Taxation work for Portfolio Management Services (PMSs) and Alternative Investment Funds (AIFs)?

Income from shares purchased through PMS is taxable as Capital Gains. Nature of these gains could be short term or long term depending on the churn in the portfolio. Typically, PMS follows a low churn but it depends upon the portfolio strategy. So, gains from stocks that are held for more than a year get treated as long term and are taxed @ 10% plus surcharges. For the holdings that traded within 1 year, treatment is short term, and are taxed @ 15% plus surcharges. For the income earned in form of dividends credited in the financial year, dividend distribution tax is already deducted at the source and in the hands of investor, these dividends tax-free. But, if total income from such dividends earned in a financial year is more than 10 lacs across all investments, then additional dividend income tax is also applicable.

For tax on Category I and II AIFs, these are generally treated as pass-through vehicles, meaning the income is taxed in the hands of the investors and not at the fund level. However, this pass-through status is not available for business income, which is taxed at the maximum marginal rate at the fund level.

Lastly, for Category III AIFs, these funds do not enjoy the pass-through status. Income from these funds is taxed at the fund level before distribution. The rate of taxation depends on the nature of the income – short-term capital gains, long-term capital gains, business income, and so on.

 

EQUITY
Listed Equity Unlisted Equity
MF PMS^ CAT III AIF CAT I AIF CAT II AIF
Tax on Short Term Gains on Equity* 15% 15% Taxed at the
fund’s level ^^
Taxed at the investor’s end, as per his/her tax slab
Tax on Long Term Gains on Equity* 10% 10%  20% with Indexation benefit

*Short term = Holding period <12 months in case of Listed Equity & <24 months in case of Unlisted Equity
Long Term = Holding period >12 months in case of Listed Equity & >24 months in case of Unlisted Equity
LT Gains are charged on MFs & PMSs @ 10% above Rs 1L p.a.
Non-equity Capital Gains: Added to income; ST = < 3 year holding, LT = > 3 year holding, no indexation benefit

^For the income earned in form of dividends credited in the financial year, dividend distribution tax is already deducted at the source and in the hands of investor, these dividends tax-free. But, if total income from such dividends earned in a financial year is more than 10 lacs across all investments, then additional dividend income tax is also applicable.

^^ Cat III AIFs are NOT pass-through vehicles, and thus they are taxed at the AIF level itself. The taxation rate depends on the type of income:
Business Income / Trading & Speculation / ST Capital Gains on Non-equity / Dividend Income: 42.7%
ST Capital Gains on Equity: 15% + 15% Surcharge = 17.9%
LT Capital Gains on Equity: 10% + 15% Surcharge = 11.9%
LT Capital Gains on Non-equity: 20% post indexation + 15% Surcharge = 23.9%

DEBT
MF PMS CAT II AIF
Tax on Short Term Gains on Debt Gains will be added to investor’s income and taxed as per income tax slab rate Gains will be added to investor’s income and taxed as per income tax slab rate It is a pass through structure in Cat II AIFs, hence the interest income is taxed as per the investor’s tax slab
Tax on Long Term Gains on Debt

PS: For Debt MFs, amount invested before 31.03.2023 will be subject to indexation benefits on LTCG.
In case of Debt, STCG = <36 months and LTCG = > 36 months
Differences between NRI and RI taxation may come in when the country where the NRI resides doesn’t have a Double taxation avoidance agreement(DTAA) with India. However, India has DTAA with most major countries like USA , UK, Singapore, Canada, and so on.
Pls refer to our section on country-wise taxation rules to know more.

How to avoid investing in a Portfolio Management Service(PMS) that may not be the Best?

There are more than 300 SEBI registered Portfolio Management Services operating in India. We at PMS AIF WORLD are quite selective in our approach. Let us share what are the 10 factors and investors need to be careful about while selecting PMSs ( Portfolio Management Services )

  1. You could be paying more taxes, if you are investing in a PMS that churns a lot.
  2. You could be paying higher fees, if you have selected wrong fee option.
  3. Your PMS could be too much concentrated and very high on risks, if portfolio has less than 10 stocks.
  4. Your PMS could be too much diversified and it will be very difficult for it to generate Alpha if it has more than 40 stocks.
  5. Your PMS could just be doing good marketing about their product and objectively performing very badly on risk adjusted returns. 
  6. Your PMS could be seeing too often changes of its portfolio manager and hence, skin in the game, could be a question-mark.
  7. Your PMS could be managing very high quantum of assets( ~ 10k cr more), making it inflexible and adversely impacting the performance.
  8. Your PMS could be managing very less quantum of assets(~ 500 cr or less), making it prone to risk of fall in performance as rise in AUM would require bigger team, and founder portfolio managers would need to demonstrate man-management skills, where most struggle. 
  9. Your PMS could be charging uncompetitive exit loads. 
  10. Your PMS could be offering you lower fund management fees, but charging higher custody fees or demat charges etc

PMSs Performance #

Company Name Scheme Name Category AUM (in Rs. Cr) 1m Return 3m Return 6m Return 1y Return 2y Return 3y Return 5y Return 10 y Return SI
Abakkus Asset Manager All Cap Approach Multi Cap 6,040.00 0.48% 3.51% 15.54% 40.66% 27.55% 21.05% - - 33.07%
AlfAccurate Advisors IOP PMS Multi Cap 1.00 1.64% 8.12% 18.30% 34.93% 24.82% 18.13% 19.41% 18.61% 19.08%
ICICI Prudential PMS Contra Strategy Multi Cap 6,844.60 3.50% 12.20% 28.00% 55.00% 39.40% 27.70% 25.10% - 23.30%
Negen Capital Special Situations Fund Multi Cap 844.54 -2.18% 1.66% 14.12% 55.02% 30.85% 27.81% 31.42% - 18.73%
SageOne Investment Core Portfolio Mid & Small Cap 3,800.00 0.18% 11.56% 23.90% 67.31% 28.78% 21.62% 25.75% 24.51% 28.25%
Sameeksha Capital Equity Fund Multi Cap 1,273.48 -3.00% -0.10% 10.40% 49.60% 34.10% 24.00% 29.40% - 23.30%
Stallion Asset Core Fund Multi Cap 1.00 1.62% 11.94% 26.14% 83.32% 44.62% 29.10% 31.37% - 30.53%
Green Lantern Capital LLP Growth Fund Mid & Small Cap 616.45 2.44% 22.32% 42.90% 120.89% 75.19% 55.49% 43.06% - 27.94%
Renaissance India Next Portfolio Multi Cap 259.96 -0.70% 5.35% 18.93% 37.32% 31.67% 28.14% 21.84% - 17.23%
2Point2 Capital 0.00 - - - - - - - -
2Point2 Capital 0.00 - - - - - - - -

#Returns as of 31 May 2024. Returns up to 1 Year are absolute, above 1 Year are CAGR.

Get access to 200+ PMS performance data.

Check & compare between various PMSs across benchmarks.

Check out monthly Peer group PMS reports with performance data as of every month.

Frequently Asked Questions - FAQs

Why should one invest in a PMS?

• Concentrated, and Focussed**
• Own businesses, and not units**
• You own your own portfolio**
• Most Transparent**
• Buy and hold, with low churn**

Who can invest in a PMS?

Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.

How are PMSs taxed in India?

Since under a PMS, investments are held directly in the investor’s name (and not via a trust like in a MF or AIF), the tax liability for the PMS investor is the same as the investor directly buying or selling shares/securities in his own name.

Income from shares purchased through PMS is taxable as Capital Gains- could be Long term or Short term in nature.

– Gains from stocks that are held for more than a year get treated as long term and are taxed @ 10% plus surcharges.
– For the holdings that traded within 1 year, treatment is short term, and are taxed @ 15% plus surcharges.
– For the income earned in form of dividends credited in the financial year, dividend distribution tax is already deducted at the source and in the hands of investor, these dividends tax-free. But, if total income from such dividends earned in a financial year is more than 10 lacs across all investments, then additional dividend income tax is also applicable.

What is a PMS?

PMS or Portfolio Management Services is a licensed and professional investment service offered to cater to the objectives of niche segment of long term investors with minimum investment ticket size of Rs 50 lacs.

What is the minimum investment amount in a PMS?

Rs 50 lakhs.

Who is a Portfolio Manager?

A portfolio manager is a legal entity that, under the terms of a contract with a client, advises, directs, or conducts the management or administration of the client’s portfolio of securities, assets, or money (whether as a discretionary portfolio manager or otherwise). The portfolio manager must have a net worth of at least INR 5 crore.

Clients on-boarded by the Portfolio Manager prior to January 21, 2020 were required to bring in minimum of INR 25 Lacs as their initial investment. What is the minimum amount that may be further invested (top-up)by such clients on or after January 21, 2020?

Clients of Portfolio Managers on-boarded before January 21, 2020 shall, in case of any top-up, comply with the requirement of new minimum investment amount and top up their accounts to minimum INR 50 Lacs.

How many types of PMSs are there?

PMSs are of two types- Discretionary PMSs & Non-Discretionary PMSs. In a discretionary PMS, the portfolio manager handles each client’s assets and securities separately and independently, according to the client’s needs- but takes decisions on his own. In the non-discretionary PMS, the portfolio manager manages the money according to the client’s instructions.

Who can invest in PMSs?

Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.

How are PMSs taxed in India?

Since under a PMS, investments are held directly in the investor’s name (and not via a trust like in a MF or AIF), the tax liability for the PMS investor is the same as the investor directly buying or selling shares/securities in his own name.

Income from shares purchased through PMS is taxable as Capital Gains- could be Long term or Short term in nature.

– Gains from stocks that are held for more than a year get treated as long term and are taxed @ 10% plus surcharges.
– For the holdings that traded within 1 year, treatment is short term, and are taxed @ 15% plus surcharges.
– For the income earned in form of dividends credited in the financial year, dividend distribution tax is already deducted at the source and in the hands of investor, these dividends tax-free. But, if total income from such dividends earned in a financial year is more than 10 lacs across all investments, then additional dividend income tax is also applicable.

Why should an investor select a PMS over a MF?

Unlike a mutual fund, PMS, gives access to ownership in the individual shares. PMS works on the concept of personal demat, whereas mutual funds offer units in the pooled portfolio. In PMSs, one investor’s behavioural reactions to market movements doesn’t impact other investor’s portfolios. PMS have for flexibilities with regards to allocation per business, per sector, cash calls. PMS are more focused, concentrated, and follow relatively lower churn, as funds do not flow in and out too often as in case of pooled structure like MF. PMS are more transparent in terms of activity, transactions, holdings, expenses, and so investor is more connected and informed about where the money is eventually invested.

Can NRIs invest in PMSs in India?

Off-course Yes, NRIs can invest in PMSs in India. Depending upon your country, PMSs have different TnCs for NRIs- to get a more details, regarding NRI Investments in Indian PMSs, please visit:

https://www.pmsaifworld.com/portfolio-management-services-pms-for-non-resident-indians-nris/#1595314104121-e9921f40-4bb4

https://www.pmsaifworld.com/portfolio-management-services-pms-for-non-resident-indians-nris/#1595314104121-e9921f40-4bb4

What are the fees / profit sharing structure in a PMS?

According to the SEBI (Portfolio Managers) Regulations, 2020, the portfolio manager must charge a fee for portfolio management services based on the agreement with the customer. The cost may be a set sum, a performance-based fee, or a combination of the two.

The agreement between the portfolio manager and the client must specify, among other things, the amount and manner of fees due by the client for each activity for which the portfolio manager provides services directly or indirectly.

Most PMS offer various fee options like fixed fees, variable fees or hybrid of both fixed and variable.

Where can the Portfolio Manager invest the clients’ money?

Under Discretionary Portfolio Management Service (DPMS), Portfolio Managers shall invest funds of his clients in the securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through direct plan and other securities as specified by Board from time to time.

Under Non-Discretionary Portfolio Management Service (NDPMS), Portfolio Managers may invest up to 25% of the AUM of a client in unlisted securities, in addition to the securities permitted for discretionary portfolio management.

“Unlisted securities” for investment by Portfolio Managers shall include units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, etc. which are not listed on any recognized stock exchanges in India.

Can a client make a partial withdrawal from the PMS?

The customer may withdraw partial sums from his portfolio, if it follows the terms discussed in line with the provisions of the client’s agreement with the Portfolio Manager. The value of the portfolio’s investment following such withdrawal, however, must not be less than the required minimum investment amount.

Till what % is the fees negotiable?

Broadly, it can be reduced by 20% to 40%, depending upon the ticket size and the product.

What is better: Pure fixed fee structure or Variable fees?

This totally depends upon your expectation from the portfolio manager. If you are convinced that returns for next 1 year from your starting level are going to be most probably upwards of 15%-17%, then you should opt for fixed fees; but, if you are unsure and see 15%-17% as max possible returns, then go for variable fees.

Can I change the fee structure from time to time?

Yes, for an open ended PMS where performance fees is settled every year, fees option can be modified after every 1 year cycle, but not so in case of closed ended AIF or those PMSs where performance fees is charged at maturity while returning the money or after 3Y or 5Y, as the case maybe.

Check the whole list of FAQs – PMS FAQs

The safest and most potentially profitable thing is to buy something when no one likes it. – Howard Marks

The future is never clear; you pay a very heavy price in the stock market for a cheery consensus. Uncertainty is actually a friend of the buyer of long-term values. -Warren Buffett

Latest Articles

Wish to make INFORMED INVESTMENTS for Long Term WEALTH CREATION

Do not Simply Invest, Make Informed Decisions

imageBOOK A CALL WITH OUR SPECIALISTS

 

Do Not Simply Invest, Make Informed Decisions

Subscribe To Our Newsletter

By PMS AIF WORLD • Over 30,000 Subscribers

Stay informed with our latest updates. Subscribe to our newsletter for exclusive content, news, and valuable insights.

This will close in 0 seconds

This will close in 0 seconds