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Portfolio Management Services

People look towards the stock market with great expectations. Many invest in it to make a fortune. Nevertheless investing is a risky exercise. Subsequently, they over-diversify their portfolio and add multiple stocks. This tends to push them backward. Investing is an art and science and Portfolio Management Services (PMS) eases this experience.

What are portfolio management services?

The portfolio Manager extends the PMS to clients. It is an investment portfolio diversified into stocks, fixed income, and other products. It can be tailored to meet specific investment objectives in contrast to Mutual Funds.

An investor owns individual securities when they invest in PMS. Mutual Fund investors in contrast own a unit of the fund. They have the flexibility to change their portfolio as per their comfort and financial goals. Also, they are stated for relatively large investments.

How does Portfolio management services work?

To illustrate, there are mainly 4 types of Portfolio Management Services in India,

1. Discretionary: The portfolio manager has the sole discretion in the investment strategy. Although the client is not involved in decisions, they can monitor their portfolios. However, they can monitor the performance of the portfolio at any time.

2. Non Discretionary: On the contrary, here Portfolio manager only suggests investment ideas to clients. Whether to invest or refrain from doing so depends on the client.

3. Active Portfolio Management: The portfolio manager actively tracks the market movements and makes the decision to purchase under-par stocks at a low price. He subsequently sells them when they breach the normal. However, knowledge of quantitative analysis and the business cycle is required.

4. Passive Portfolio Management: It is in contrast to the active mechanism. Despite the manager chooses to invest in the safe side, they take a Passive approach and minimum risk tolerance is key. As a result, diversification of portfolio spreads the risk and minimizes the loss.

Generally, a totally non-discretionary PMS approach is a difficult blend to achieve. Hence, the majority of PMS in India are discretionary. The client usually suggests a negative list of stocks they wish to avoid. The portfolio manager creates the portfolio accordingly.

The investor and portfolio manager enters into an agreement. Investment Policy Statement is issued to the clients in compliance with SEBI rules. The investor can either pay up to Rs.50 lakhs or stocks equivalent to this.

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What are the benefits of PMS?

1. Professionally Managed: PMS provides professional management of portfolios. It enables good long-term performance in addition to being professional. Consistently delivering results.

2. Regular Monitoring: Moreover, the portfolio manager has to monitor the portfolio at regular intervals to ensure that it is in tune with the market movements. It optimizes results.

3. Provides Flexibility: The portfolio manager is at ease to handle the portfolio as per his judgment. He can hold the cash up to 100% if the market situation is such. It enables him to cash in compelling opportunities.

4. Transparent Transactions: It provides a robust communication and performance report. Thus, the investor gets regular updates and statements about his portfolio. They can access it on the web at any time. It will give them the full information about the shares they hold and the transactions done so far.

5. Customized Advice: PMS provides tailor-made advice to the client regarding their portfolio. This helps in getting them closer to financial goals. Moreover, it takes care of an individual client’s needs. It helps in mitigating losses by reducing over-exposure.

Drawback of PMS

1. High-mandated Investment: SEBI monitors PMS under its jurisdiction. However, as per its rules, a minimum of Rs.50 lakhs needs to be invested into the PMS corpus. This makes it difficult for low-income individuals to invest in this premium service. As a result, only High Net Worth investors can avail of this service.

2. High user fee: Most firms charge very high user fees from investors for PMS service. The asset management fee can range from 2-2.5%. Most PMS houses charge a percentage of profit over hurdle rate. As a result, this eats up the profits.

3. No Guarantee: PMS houses are a party to profits but not in losses. It is to be borne by the investor. The market movements carry unpredictability and can be subject to huge losses.

Who can invest in Portfolio management services?

High net worth(HNI) investors or people with an extremely high-risk appetite can easily avail of this service. The minimum corpus amount is Rs 50 lakhs and there is no upper limit. In addition to this HUF’s (Hindu undivided families) and Sole proprietorships can invest.

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PMS Taxation and risk involved

If the capital gains have been accumulated by selling the equity-linked securities on notified stock exchanges the taxation is as follow,

  • Long-term capital gains: No Tax.
  • Short-term capital gains: 15%.

If the equity securities are not sold on notified stock exchanges,

  • Long-term capital gains: 20% tax (inclusive of cost inflation index).
  • Short-term capital gains + other income is taxed as per their I-T slabs.

Risks:

  • A portfolio manager may concentrate a good amount of money in a single stock. This can prove counter-productive as a downward movement can wipe off gains.
  • The standard deviation in PMS is around 65%-70%, higher than mutual funds.

Why choose Investify.in for Portfolio management services?

Clients are given an array of benefits that beats the competition. Our clients deserve the best and we ensure it stays that way.

1. More Products To Choose From: Firstly, we believe our clients deserve the best of all worlds. Our products are ideal and suitable for your investment needs.

2. Flexible To Switch Strategies: Secondly, we provide convenience to switch strategies as per the need.

3. Hassle-Free PMS Access: Thirdly, you can access your PMS account anytime, anywhere. All at a click.

4. Monthly Performance Report: Also, in pursuant to the SEBI rules and transparency, we offer monthly reports to our clients.

5. Local Client Servicing Across India: Moreover, we cater to our clients all across India. We’re just a drop of a hat away.

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Basic Queries regarding Portfolio management services

Q.) Will it help me with my tax status?
Ans. Capital gains are applied depending on the hold time of stocks. STCG:15% tax, LTCG: No tax.

Q.) Can I specify sectors that I want or don’t want to hold?
Ans. Yes. Our clients can specify the sectors they want to invest in or avoid. The portfolio manager will craft the portfolio according to the specification.

Q.) Can I meet my portfolio management/ Investment Advisory team and discuss the portfolio?
Ans. We understand that you have invested your hard-earned money with us. We can schedule a meeting/call as per your needs with our investment advisory team and you can have your queries settled.

Q.) Can an NRI avail of the Portfolio Management Service?
Ans. All Indians, resident or otherwise, can open a PMS account. Non-Resident Indians can open a Portfolio Investment Scheme(PIS) account as mandated under the RBI guidelines.

Q.) Can I open a PMS account with a combination of cash and stocks?
Ans. Yes. You can open the PMS account with cash and stocks. You can adjust it as per the needs.

Q.) Can I book my profits partially at any time?
Ans. Yes. You can withdraw your profits at any time. The only requirement is that your portfolio limit should not be below Rs.25 lakhs as per SEBI guidelines.

Q.) How can I add further investments to my existing PMS account?
Ans. Directly add the balance in via net banking, check, or UPI in the Demat account and the PMS scheme company with POA will allocate it in the suitable proportions in the right sector shares.

Q.) What is the minimum to be added as further top-up to my investments?
Ans. 5 Lakhs.

Conclusion

Undoubtedly, Portfolio Management Services are an attractive option for High Net Worth investors. A minimum corpus amount mandated by SEBI is Rs. 50 lakh. PMS houses offer discretionary and non-discretionary services to the investors in India. Owing to complexity in trading issues, the majority of the trades are through discretionary services, though the clients can place their choice of stocks before the manager. Capital gains are taxed on the PMS and it depends on the holding period. Like every other investment, PMS too is risk-prone and requires thorough deliberations before embarking on the investments.

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