Portfolio Management Service (PMS) is the most popular service among investors. Most brokerage firms and investment advisors offer this service with minor changes. Portfolio Management Service is a 360 degree service for any investor. The service helps the investors in every stage of investment and also ensures that they get the best possible returns.
It is offered by the portfolio manager, a professional PMS managed portfolio invested in stocks, fixed income, debt, cash, structured products and other personal securities, specifically tailored to the investor to meet the investor’s specific investment objectives. can go.
This means that by paying more attention to the individual needs of the investor in the PMS service, by creating a personal account and giving him maximum returns. Where many investments in mutual funds invest together under a trust, every investor in PMS has a separate portfolio or account, which is always monitored by a manager.
When you invest in PMS, unlike a mutual fund investor where the units of the fund are given, you own the investment instruments in PMS. You have the freedom and flexibility to build your portfolio that way to address personal objectives and financial goals.
Although portfolio managers can oversee hundreds of portfolios, PMS are the type of accounts. Mainly three types
Discretionary : Under these services, the choice of choice as well as the timing of investment decisions is entirely with the portfolio manager. Managers in most of India’s portfolios provide discretionary services.
Non-Discretionary : Under these services, the portfolio manager suggests only investment considerations. With the election decision, the time of investment is entirely with the investor. However, investment funds are bought by the portfolio manager.
Advisory : Under these services, the portfolio manager only suggests investment ideas. The choice as well as the investment decision and making that trade or purchase is all entirely up to the investor.
PMS CHARGE
The biggest hurdles of selection for portfolio management services are its fees and charges. The fees charged by the PMS include three components. Entrance fee, management fee and performance fee. Some PMS also offer fixed fees. Let’s just understand what all the fees you charge when you opt for PMS.
ENTRANCE WEIGHT:
Many advisors offering PMS services have an entry load of around 2% to 3% which is only taken at the time of purchasing PMS. This is the initial fee by PMS.
MANAGEMENT FEE:
Each portfolio management service charges a plan management fee. These are fund management fees that vary from 1% to 3%. These charges are levied by the service provider on a quarterly basis to the PMS account.
PROFIT SHARING / PERFORMANCE FEE :
Some PMS schemes have a profit sharing system. This is one of the commonly used and charged fees, here the PMS provider charges a fixed flat fee and asks for a fixed amount of fees or a percentage of profit on the prescribed return generated against the benchmark. It simply means that if you get more returns from the benchmark, then some of that profit will be made by the company.
FIXED FEE:
This is a flat fee that is charged by the PMS provider to investors on a monthly, quarterly or annual basis. It is not a percentage based fee. This fee is fixed by the investors before they can avail PMS. There are some PMS providers who manage this fee based on the portfolio or assets or corpus to be handled.
RETURN FEE:
This is a fee charged by the PMS provider if you redeem the investment before the minimum investment period while availing the service.
In addition to the above fee, you can also charge a brokerage fee every time an investment instrument is bought or sold.
SO SHOULD YOU INVEST ?
FIRST, WHAT IS THE MINIMUM INVESTMENT AMOUNT IN PMS?
The minimum investment prescribed by the regulator (SEBI) in PMS is Rs 25 lakh. Therefore any interested investor should have at least 25 lakh rupees to invest as these services are made only for large HNIs ie High Net Worth Individuals.
Ease of investing : Being a high end product with a minimum investment of Rs 25 lakh, a lot of paperwork is involved. Due to these factors, you cannot invest in PMS like mutual funds. Mutual funds are clearly easy to invest.
Cost : There is no publicly available data to estimate the total average cost of PMS, but the spending figure here will be above 5-8%. Therefore, you have to understand all the applicable costs before choosing PMS. In addition, if the portfolio manager highly approves your portfolio, it may lead to higher transaction costs that may exceed the fees charged.
Taxes : Tax norms for mutual funds are much simpler and easier to manage. If your portfolio manager is trading too much, it can lead to significant short-term gains that can attract a tax of 15% (excluding surcharge and cess).
After understanding these points, it seems that for a common investor who does not have a large amount of 25 lakh, mutual funds are the easiest and beneficial solution.
