How do portfolio management services operate?

• Follow

PMS stands for Portfolio Management Services, it is a professional service in which proficient portfolio managers and stock professionals manage the portfolio with the help of their research team. Through PMS, an investor can earn higher return from the share market at lower risk. In portfolio management service, there is a focus on personalization. The manager prepares the portfolio as per customer needs.

PMS provides two kinds of plans – Discretionary and Non Discretionary:

In the discretionary plan, the fund manager has control over decision-making. In the non-discretionary plan, the fund manager buys or sells after consultation with a client. Many Portfolio Management Services (PMS) only provide advisory services. PMS does not have permission for pooling, meaning it cannot take money from multiple people and issue units to them in a single scheme. However, the strategy of PMS is similar to that of mutual funds. PMS issues a model portfolio, so it is considered a strategy rather than a scheme.

Now let us see who all can invest in PMS. You should know that common folks cannot invest in PMS because the minimum investment starts from Rs 50 lakh. Generally, HNIs or large investors invest in this. On the other hand, mutual funds are pools of funds that are managed professionally. In these funds, shares or bonds are purchased from the money obtained from investors. An investor can start investing in a mutual fund with as little as 100 rupees. This is why mutual funds are preferred by general investors.

In PMS, a more selective approach is taken by choosing only 20 to 30 stocks. On the other hand, mutual funds offer investors a diversified portfolio with around 40 to 50 stocks. One significant difference between PMS and mutual funds lies in the flexibility of investment. PMS provides more freedom in selecting investment assets. On the other hand, mutual funds are more regulated in their selection process based on factors such as types of assets, security choices, percentage allocations, expense ratios, and more.

Speaking of returns, in PMS, returns can range from 50 to 80 percent annually. On the other hand, when it comes to mutual funds, specifically equity funds, it has been observed that they can yield annual returns around 20 percent or more over the course of a year. Now, talking about the strategies employed by the top PMS and the kind of returns they have delivered. PMS Bazar has analyzed the top 10 funds out of 325 PMS funds.

Now let’s take a look at how taxes are applied to PMS. Mutual funds have more advantages over PMS when it comes to taxes. The fund manager in mutual funds doesn’t have to pay taxes on the purchase or sale of shares. Taxes are only applicable when an investor sells units and makes a profit.

On the other hand, in PMS, taxes need to be paid whenever shares are sold or dividends are earned.

Jay Thacker, a member of the Association of Registered Investment Advisors (ARIA), states that it’s important for investors looking to invest in PMS to be willing to take on more risks for fluctuations, have sufficient financial coverage for taking risks, and have a time horizon of at least 10 years or more.

If you are investing through PMS, thorough research and monitoring are essential. You need to assess whether the performance aligns with your goals and expectations. Also, consider how capable the portfolio management team is.

It’s important to note that while PMS can offer high returns, it also comes with higher fees and taxes. The management fee can range from 1 to 3 percent. Additionally, entrance load charges and administration fees might apply. When selecting a PMS provider, compare all types of fees and select the most cost-effective solution based on your needs.