Table of Contents
Let’s talk about what Portfolio Management Services mean. The investors would receive help from Portfolio Management Services (PMS) in managing their investments. Investment can be a challenging process for those who just starting out, as it requires comprehensive knowledge regarding the market. Investors must be able to estimate the risk and losses that can occur in the sector. Portfolio Management needs the ability to evaluate strengths and weakness opportunities and threats across the entire spectrum of endeavours.
Portfolio Management Service
The goal of a portfolio manager’s Portfolio Management Service (PMS) is to achieve the appropriate rate of return while maintaining the desired level of risk. Stocks, fixed income, commodities, real estate, other structured products, and cash can all be included in an investment portfolio. A portfolio manager is a qualified investment professional with extensive understanding of the market’s numerous instruments who focuses on examining the investor’s investment goals. A portfolio manager is in a better position than a layperson to decide on investments in securities with knowledge.
High Net-worth Individuals (HNI) clients are given access to Portfolio Management Service, a personalised service. The service is tailored to the investor’s needs for return as well as their capacity and desire to take on risk. A Portfolio Management Service draughts an Investment Policy Statement (IPS) to comprehend the client’s financial situation and needs. The portfolio manager makes sure that the risk profile and the return requirements are in line. Before implementing the ideal portfolio, Portfolio Management Service also considers the client’s specific needs and limits, including time horizon, tax implications, liquidity, and other special concerns.
For instance, PMS started with a minimum ticket size of Rs 5 lakh in 1993, subsequently hiked it to Rs 25 lakh. Moreover, SEBI further hiked the PMS ticket size to Rs 50 lakh in November 2019.
What is Portfolio Management Process?
The investor’s investment objectives are defined by the portfolio manager, who then converts them into realistic goals, allocates resources to help the investor reach those goals, monitors returns, and rebalances the portfolio if there is a discrepancy between the portfolio’s risk and return profile. The portfolio management process consists of these 3 steps:
1. Planning: Planning the first step of portfolio management and involves the making of the Investor Policy Statement (IPS). Investor policy statement defines the willingness and the ability to take risk from the investors point of view. It also sets the objectives of the investors in terms of their risk and return keeping in mind the IPS of the individuals.
2. Execution: Execution is the second step and involves allocation of the investment corpus to various asset classes and various products within the asset classes to match the risk-return profile stated in the IPS.
3. Feedback: In the third and final step of portfolio management, the portfolio manager monitors the performance of the portfolio and makes changes to the assets wherever they are falling short of their expected returns. Rebalancing of the portfolio might be done to achieve better returns or the portfolio might stay as it is if it is performing as per expectation.
Types of Portfolio Management Services in India
Lets move on to the types of Portfolio Management Services. This section will furnish you with different types of Portfolio Management Services that comes alone with their own objectives,
- Active Portfolio Management
- Passive Portfolio Management
- Discretionary Portfolio Management
- Non-discretionary Portfolio Management
Active Portfolio Management
The portfolio manager has to be present all the time whenever the investor is in need of him. The procedure where the manager makes explicit speculations with the objective of outflanking a venture benchmark or target return.
The higher the returns, the hiher the risk will be involved; rather than Investing the whole amount in one sector, the portfolio manager attempts to reduce the risk by expanding invetment in different sectors.Active Portfolio Management focuses on generating higher returns than a benchmark index like the Nifty 50 or the BSE Sensex.
Passive Portfolio Management
This is totally opposite to Active Portfolio Management, The main plan is to get the ame return, as shown in the index. It is also known as Index Management. This method is implemented by the investor or portfolio managers is much of an inforal approach. They set a benchmark index as to where they want to reach and perform accordingly. The objective is to create a good amount of return on investment according to the selected benchmark.
Discretionary Portfolio Management
Here the investor has to trust the fund manager. The investor just needs to provide the capital amount to the manager. The rest is decided by the portfolio manager.
The portfolio manager takes all the decisions that perfectly suits the clients investment policy. In the Discretionary Portfolio, the manager charges more than others as he needs to put more effort into achieving the goals.
Non-discretionary Portfolio Management
Under Non-Discretionary Portfolio Management Services, the portfolio manager gives investment ideas. However, clients decide whether to take up these investment ideas while the execution of trades rests with the portfolio manager.
In Non-Discretionary Portfolio Management Services, the fund manager suggests investment strategies and works according to the direction given by the client.
Portfolio Management Service Strategies
The portfolio manager uses different strategies to earn profit in the following ways:
1. Asset Allocation: The manager invests in different types and classes of assets to gain profit with significant risk. Asset Allocation makes sure that a sharp fall in one asset class does not impact the overall portfolio performance.
2. Diversification: The word diverse means that the manager diversifies the investment portfolio to gain profit and offset losses from one investment with the gain from another. Portfolio managers of PMS use the diversification strategy to enhance the portfolio’s risk-adjusted returns. Diversification is a technique of allocating capital across a variety of investments.
3. Rebalancing: The market conditions are ever-changing; thus, rebalancing the portfolio is necessary time and again to gain higher returns with little risk.
4. Tax Reduction: It means finding a strategy to avoid paying excessive taxes on investment profit returns.
Portfolio Management Service in India
The top PMS in India will ensure you get what you are looking for with an appropriate investment portfolio and get you the best assets in hand with investor-appropriate risk and returns. The top performer was Molecule Ventures – Growth, a smallcap PMS fund, which gave the highest return of 35.2% in 2022. It was started in May 2021 and since inception it has returned 34.35% to its investors.
List of the Top PMS in India
Ranking parameters include a combination of returns, number of clients, charges, support and goodwill. Here are selected five that make it to the list of best PMS services in India.
- Porinju Veliyath Equity Intelligence PMS
- Motilal Oswal Next Trillion-Dollar Opportunity PMS (NTDO)
- Kotak Pharma Fund
- ICICI Prudential PMS
- ValueQuest PMS
Equity Intelligence PMS
- Porinju Veliyath’s Equity Intelligence is one of the best PMS in India. Equity Intelligence was formed in 2002. The minimum investment needed in this PMS is INR50 lakh. The fund manager decides when to buy and sell stocks in this discretionary PMS. No lock-in period means money can be withdrawn at any moment.
- Equity Intelligence PMS charges 2% annually (0.5% quarterly on average NAV) for managing funds. In addition, it charges a 10% share of returns above 10% per annum. Porinju Veliyath’s PMS is available to NRIs along with Indian residents.
- Equity Intelligence PMS AUM: INR 1,343 crore
- Equity Intelligence PMS Returns
Motilal Oswal Next Trillion-Dollar Opportunity (NTDO) PMS
- Next Trillion Dollar Opportunity (NTDO) is a multi-cap PMS from Motilal Oswal. This PMS is perfect for long-term investors looking to benefit from the India growth-story through investing in high quality companies.
- NTDO’s annual management fee is 1 – 2.5%. Audit, custody, and exchange costs are extra. Investors looking for lower fee have an option of trading-off fixed fee with variable charges above 10% hurdle rate.
- Motilal Oswal NTDO AUM: INR 7,400 crore
- Motilal Oswal NTDO 3-year Returns: 11.7
Kotak PHARMA Fund
- Kotak PMS was founded in 2012 and is one of the country’s top PMS in India. Like others in this list of best PMS services in India, Kotak PMS’ minimum investment is INR50 lakhs. This PMS service is discretionary in nature and invests in 10 – 25 stocks to achieve bigger returns.
- Kotak PMS has 4 products with a highly-rated PHARMA Fund that has 3-year returns of 23.9%.
- Kotak Pharma Fund charges a 2.5% annual cost with no performance fees. However, early exits within 1 year and 2 years incur 2% and 1% exit loads, respectively.
- Kotak PMS AUM: INR1,627 crore
ICICI Prudential Portfolio Management Services (ICICI PMS)
- ICICI PMS is a top PMS in India and given the size and reach of its parent organization, this is hardly surprising. ICICI PMS offers many products and portfolios. Core & Thematic, Large Cap, Flexi Cap, Infrastructure, Export, Wellness, Absolute Return, Enterprising India Portfolio.
- ICICI Prudential PMS requires minimum investment of an INR50 lakh and has prepaid fee structure of 1.6% – 2.2%. Profit sharing is as high as 33%. In addition, there are custodian, depository and brokerage charges.
- Founded by Ravi Dharamshi and Sameer Shah, ValueQuest is among the best PMS services in India and runs two highly-rated strategies, specializing in small and midcap space. The founders have vast experience in companies including Rakesh Jhunjhunwala’s RARE Enterprises, BRICS Securities and Sharekhan.
- The PMS aims to generate alpha by taking concentrated bets in sectors with high scope of growth while also keeping an eye on corporate governance.
- ValueQuest AUM: INR 4,400 crore
- ValueQuest Platinum 3-year Returns: 40.7%
Portfolio Management Service vs Mutual Funds
This table will help you to understand the exact scenario of both PMS and Mutual Fund,
|Customization||High Degree||Comparatively low|
|Engagement||Higher involvement||Low involvement|
|Fee structures||Annual Maintenance Fee + share in profit||Fixed Fee + Annual Maintenance Fee|
|Asset Ownership||Direct ownership of shares to investors||Units in the form of investment|
|Investment size||₹50 lakhs and above||Any amount|
Particularly if you are an HNI, PMS can be a terrific approach to achieve your investment objectives. The minimum investment cap of INR 50 lakh prevents retail investors from investing in equity through portfolio management services. Even the top PMS services in India are unable to get around this legal necessity.
PMS is required to promptly inform the client of such disclosures. But access to these is restricted to the general public. It is also challenging to assess and analyse the performance of different PMS products.
Performance management services offer investors greater freedom over the structure of their portfolios than mutual funds do because there are fewer investors and more customisation choices for large investors and high net worth individuals (HNIs). Since PMS service providers demand greater fees compared to Mutual funds, this flexibility does not come cheap.
Portfolio Management Services-FAQs
Q. Who is an ideal PMS investor?
Ans: The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth.
Q. Who can invest in PMS?
Ans: Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.
Q. Are there risks associated with PMS investments?
Ans: Yes. All investments involve a certain amount of risk, including the possible erosion of the principal amount invested, which varies depending on the security selected.
Q. What is the tax treatment in PMS investment?
Ans: The tax liability of a PMS investor would remain the same as if the investor is accessing the capital market directly.
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