Is PMS Investment The Right Way To Invest For You?

Portfolio Management Services or PMS are customised investment solutions offered by AMCs and brokerage firms besides independent portfolio managers. This service is designed to achieve investors’ financial goals while considering their risk appetite. When individuals invest in PMS, they own all financial instruments in their name, contrary to mutual fund investments.

According to the rules of the Securities and Exchange Board of India (SEBI), individuals must invest at least Rs.50 lakh in PMS. Hence, these solutions are usually exclusive to high net-worth individuals.

Over the years, PMS has become a popular option for investors. That said, every investment avenue has its specific set of advantages and disadvantages. Hence, before opting for this investment avenue, individuals must analyse the pros and cons and decide whether it’s the right option for them. Thereafter, individuals can invest in PMS via KredX’s online platform, which ensures maximum convenience.

But foremost, it’s imperative to know the different kinds of PMS.

Types Of Portfolio Management Services:

Broadly speaking, PMS are of two types. They’re discussed below:

  • Discretionary Portfolio Management
    In this case, portfolio managers take all the buy-and-sell decisions themselves and execute strategies they believe to be appropriate. As a result, this kind of service can be offered by individuals who have specialised knowledge and the required skill set. One of the main benefits of this type of portfolio management is that an expert makes all the decisions. If investors agree with portfolio managers’ decisions, it is an added advantage.
    That said, if investors want to be involved in the investment decisions, this might not be an appropriate option for them. Also, note that a discretionary portfolio is associated with high costs. After all, portfolio managers utilise their expertise and conduct thorough research and analysis to buy and sell securities.
  • Non-discretionary Portfolio Management
    Essentially, non-discretionary portfolio managers are similar to financial advisors. They do not buy or sell financial securities at their discretion. In this case, portfolio managers provide information to investors regarding the market scenario, financial instruments, etc. However, they execute every investment decision after getting approval from investors.
    Thus, for individuals who do not want to relinquish complete control of their investment decisions, this is a suitable option. That said, they must note that the macroeconomic environment is dynamic. Since portfolio managers seek permission before every decision, it could prove costly.

Advantages Of Portfolio Management Services:

  • Tailor-made Solutions
    PMS solutions are customised to the requirements of investors so that their financial objectives can be fulfilled most efficiently. Portfolio managers take all investment decisions after assessing the risk profile and investment horizon of individuals.
  • Add-ons
    Most PMS providers offer investors an extensive range of add-ons, for example, portfolio analytics, high-quality educational blogs that can enrich their experience. Hence, these are quite suitable for investors who seek value for money.
  • Transparency
    This investment avenue is governed by SEBI. Thus, PMS providers need to disclose extensive information to the regulator as well as investors. This level of transparency is quite beneficial for investors.
  • Efficient Risk Management
    As mentioned earlier, Portfolio Management Services are offered by professionals with specialised knowledge and skills. SEBI guidelines set forth some stringent criteria about the experience of PMS portfolio managers. Hence, investors can be assured that their funds are in safe hands.
    Portfolio managers are supported by an efficient research team that provides real-time information about the market. Accordingly, PMS fund managers utilise the information and advanced risk management techniques to make investment decisions.
  • Flexibility
    Compared to other investment options like mutual funds, PMS offers more flexibility. For example, portfolio managers can allocate investors’ funds to derivatives and structured products to maximise portfolio value.

Disadvantages Of PMS:

The following are the limitations of Portfolio Management Services:

  • High Costs
    One of the main drawbacks of PMS is high fees. PMS providers charge an expense ratio anywhere between 2.5% - 5%, depending on the extent of customisation. Usually, discretionary services attract higher costs.
  • High Capital Investment
    As noted earlier, individuals need to invest at least Rs.50 lakh per SEBI if they want to opt for Portfolio Management Services.
  • Tedious Documentation Process
    Usually, PMS investments are associated with a tedious documentation process. However, investors can combat this issue by investing in PMS via KredX’s online platform. It ensures a hassle-free experience.
    Once investors are familiar with the advantages and disadvantages of investing in PMS, they must decide for themselves whether it is an ideal option for them. After all, they must choose an avenue that enables them to reach their financial goals in the most convenient manner.

Frequently Asked Questions:

A. For investors, tax implications of PMS are similar to when individuals invest in securities directly. In case stocks are sold after one year, a long-term capital gains tax of 10% applies. However, short-term capital gains attract 15% tax.