A PMS or Portfolio Management is a service offered by portfolio managers who invest in shares, funds, bonds, commodities, and other securities on behalf of their client/investors in exchange for a small fee. Unlike Mutual Funds, the ownership of securities lies with the client/investors. Unlike other funds, a PMS service can be customized, diversified, and leveraged according to an investor’s preferences. PMS services are often riskier but offer a higher rate of return on investment than other tools. This is because a portfolio manager has the expertise and is specialized in this particular field. They advance research and analysis techniques to choose the best investment instruments.
Advantages of Investing In A PMS
- A PMS is highly customizable. One gets to choose the essence, theme, or specifications of their portfolio based on their goals and risk appetite. One gets to invest across all asset classes such as shares, bonds, commodities, gold, etc. The portfolio manager implements these specifications and implements them. A mutual fund or a SIP plan isn’t as customizable. One can even negotiate the fee with the portfolio manager which one might be able to with mutual funds.
- A PMS tends to offer higher returns than a benchmark index. Since a PMS involves high-end research, analysis, and is professionally managed, it offers a higher return than benchmark indexes such as NIFTY or SENSEX. Even if the market is bearish, a good pick of stocks can certainly ensure high returns.
- Better Managed. An individual investor might make irrational or emotional decisions during a price fluctuation. A portfolio manager on the other hand is someone with experience who focuses on value instead of price and therefore would not make hasty decisions.
Drawbacks of Investing In A PMS
- High Net Worth is required. The Net Worth required to invest in a PMS is Rs 5 crore. A minimum investment limit of Rs 50 lakh is required to invest in a PMS. Considering the low per-capita income of the country and the lack of disposable income, PMS doesn’t have a good market demand.
- PMS isn’t as strictly regulated as Mutual funds. This exposes it to a higher level of risk. A PMS is also less tax-efficient than mutual funds.
- In a PMS, there is no downside protection offered. Profits are often shared when the market goes up, but losses aren’t when it goes down.
PMS Market In India
A PMS might be discretionary, where the portfolio manager will take decisions on behalf of the client without consulting the client or the service might be non-discretionary wherein the client will give inputs on investment decisions to the portfolio managers. A PMS can be used solely as an advisory service as well.
The size of the PMS industry is close to 17 lakh crore. One can choose between more than 350+ portfolio managers. India’s PMS market is tied up in the web. Someone with a huge amount of money might not want to risk it with a PMS service, whereas others might simply not meet the minimum eligibility requirements.
A Portfolio Management Service in a country where financial literacy has just started to take shape might fail to win the trust of investors. As the country develops and so do its capital markets, the PMS market might expand with financial innovation and better regulation by SEBI.