Investing in securities can be quite challenging owing to the changing economic conditions. Hence, not every investor can manage their portfolio. For them, choosing Portfolio Management Services (PMS services) can be ideal. These are customised investment solutions meant for high net-worth individuals (HNIs) who have a high-risk appetite.
Over the years, PMS has evolved tremendously. Various changes have taken place concerning its rules and regulations. For example, in 2019, the Securities and Exchange Board of India (SEBI) raised the minimum investment amount to Rs. 50 lakhs from Rs. 25 lakhs.
Investors are allowed to make further contributions to PMS services via KredX. However, such investments have to be multiples of Rs. 5 lakhs. Besides this, more changes were introduced. We’ll explore them later on. But first, let’s find out how it all started.
In 1993, SEBI (Portfolio Managers) Regulations marked the start of Portfolio Management Services as a legal investment vehicle in India. Before this, there were no regulations in the case of PMS services; plus, they had no control or legal compliance.
Three years later, Parag Parikh Financial Advisory Services Ltd. introduced PMS and named it Cognito. ICICI Prudential became the very first institutional investor to offer portfolio management services in 2000.
In 2007, JM Financial launched PMS that focused on capital protection. That year, Kotak introduced a small-cap equity PMS portfolio.
Before 2008, Portfolio Management Services were associated with fixed fees.
PMS products that were dependent on performance used to be quite popular in 2008 and early 2009. These schemes’ fees reduced significantly during that period owing to the stock market crash in 2008.
There are various types of PMS service providers in India. Some of them are mentioned below:
Every PMS provider has to adhere to strict guidelines of SEBI in relation to communication and reporting, thereby ensuring transparency.
Also, PMS providers have to offer investors application-based tools, web access so that they can get access to all the latest information concerning their portfolio constituents. It includes details regarding different instruments investors hold in their accounts.
In 2012, the total assets under management (AUM) in the PMS industry surged 14.5% between March and April 2012. That said, since 2016, the PMS industry has witnessed 400% growth. Some of the main driving factors of this significant growth are the choice of fee structure, higher returns, and transparency.
In 2017, the AUM of discretionary and non-discretionary PMS services stood at Rs. 2.14 trillion, representing a growth of 24% over the past year. Note that these figures do not take into account the assets managed under provident funds and advisory clients. Furthermore, they do not include funds managed for advisories.
SEBI introduced certain regulatory steps to establish uniformity in reporting, compliance as well as profiling. It has brought transparency by following regulated returns based on Net Asset Value (NAV) for all Portfolio Management Services.
Moreover, the information concerning the sharing-distribution fees is also very well received. According to SEBI rules, portfolio managers can only allocate funds to financial securities that trade on regulated stock exchanges.
It is now mandatory for portfolio managers to invest via direct plans. Furthermore, they must not allocate investors’ funds to derivatives and impose any distribution charge.
Here are some investors who can invest in PMS:
As one can observe, PMS has been growing popular over the years. However, similar to any other investment avenue, there are various challenges with regard to PMS. Hence, before investing in PMS services, one must consider certain aspects, such as the investment strategy, asset allocation, etc. Post this evaluation, individuals can consider investing in PMS via KredX for maximum convenience.