Portfolio Management Services (PMS)

What is PMS (Portfolio Management Services)?

Portfolio Management Services (PMS) is a financial service provided by experienced portfolio managers, It is an investment strategy that allows investors to customize their portfolios according to their individual risk tolerance, time horizon, and financial goals.

PMS focuses on maximizing returns from a wide range of securities, such as stocks, bonds, real estate, commodities, mutual funds, and derivatives. It provides investors with professional advice on how to select suitable asset classes for their specific needs as well as comprehensive portfolio management services, including asset allocation, risk management, and monitoring.

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What is Active Portfolio Management?

Active portfolio management is an investment strategy in which a portfolio manager actively changes the composition of the investments in an investor's existing portfolio by diversifying the investments. This strategy involves studying the current market and making decisions on what to buy and sell, with the goal to maximize potential returns and minimizing risk.

What is Passive Portfolio Management?

Passive portfolio management (PPM) is an investment strategy that seeks to track the performance of a specific financial market index, rather than trying to outperform the market.

PPM focuses to minimize trading costs and transaction fees while tracking a predetermined market index. This type of portfolio management majorly involves index funds investment. Moreover, this strategy is also commonly referred to as "buy and hold" investing.

The primary goal of passive portfolio management is to mirror the performance of the underlying index by buying and holding all the securities comprising it in the same proportion as their weighting in the index.

What is Discretionary Portfolio Management?

Discretionary portfolio management is an investment strategy wherein a portfolio manager is given the authority to make decisions on behalf of their clients. The primary goal of discretionary portfolio management is to generate returns in excess of the overall market, taking into account both risk and return.

This type of portfolio management is often used when a client has a specific investment goal in mind and trusts that the portfolio manager will make decisions that are in line with that goal. The portfolio manager will then be able to use his or her discretion over how to invest assets in order to achieve the desired result considering the risk appetite of the client.

What is Non-discretionary Portfolio Management?

Non-discretionary portfolio management is an investment strategy where the portfolio manager provides guidance and advice, but the final decision on whether to buy or sell securities is made by the client. This type of portfolio management can be very beneficial for those who have a strong understanding of financial markets and an in-depth knowledge of their objectives and goals.

The primary benefit of non-discretionary portfolio management is that investors have complete control over their decisions while also having access to professional advice from experienced asset managers.

What are the objectives of portfolio management?

The objectives of portfolio management are multi-faceted and complex. At its core, portfolio management seeks to help investors maximize returns on their investments while mitigating risk exposure.

In addition to optimizing returns and managing risk levels, portfolio management also focuses on proper asset selection processes based on research, analysis, financial planning, and monitoring portfolios closely over time for changes in performance or economic conditions that could impact returns on investments adversely over time.

Portfolio managers also aim to keep track of current market trends and use them to decide which asset classes would be best suited for a particular investor at any given time while considering the risk appetite of clients.

Moreover, portfolio management is an ongoing process that requires careful analysis and monitoring of financial markets in order to stay ahead of trends and ensure optimal returns for investors.

How does portfolio management work?

Portfolio management is the process of making decisions about an investor's portfolio, which includes selecting and managing investments to meet the investor's financial goals.

• The process starts with assessing risk tolerance and creating a diversified mix of assets that match the client’s needs, goals, and preferences.
• Portfolio managers then assess the broader economic environment to evaluate market performance and how certain assets may be affected by it, as well as research individual investments such as stocks, bonds or funds to determine if they are suitable for a given portfolio.
• Based on this research and analysis, portfolio managers then decide which assets to buy or sell in order to achieve the desired level of return while also limiting risk exposure.
• In addition, portfolio managers may also need to rebalance a client's portfolio by selling off some investments and replacing them with others to maintain an optimal mix of assets that is consistent with their objectives.
• Finally, once the initial setup of the portfolio gets done, ongoing monitoring and review are required in order to ensure it continues to meet its intended purpose.

Who can invest in portfolio management services?

In India, portfolio management services can be invested in by a variety of investors. This includes high-net-worth individuals, institutions, and corporations. Individuals typically need to have a minimum net worth of Rs. 25 lakhs or more and must be able to provide proof of their financial standing.

To invest in PMS, you will need to open a PMS account with an asset management company or financial advisor that offers PMS.

What are portfolio management services charges?

Portfolio management service (PMS) charges in India vary greatly depending on the type of portfolio and the provider.

Generally, most PMS providers offer an upfront fee for managing the portfolio. The upfront fee typically consists of a one-time setup cost and can range from 1% to 3% of the total amount of funds invested through the PMS.

In addition to this, some providers may also charge a transaction fee each time a trade is initiated with their service. This fee usually ranges between 0.2% and 0.5%.

What are the benefits of portfolio management services?

PMS creates tailored portfolios based on investors' long-term objectives. Through careful research and analysis, it highlights potential opportunities in the market. The aim is to maximize returns while reducing the risks associated with each particular asset class.

In addition to this, professional fund managers also chart out the investment strategy, which includes diversification of investments across different markets and asset classes at different times to achieve an optimal return on investment.

The main benefit of PMS is that it enables investors to have more control over their investments than investing through mutual funds or stock trading. With PMS, they can tailor their portfolio according to their individual needs and preferences while minimizing the amount of time they need to dedicate to managing assets.

Why opt for portfolio management service?

Portfolio management services provide professional assistance in maximizing the long-term return of your investments while minimizing risk.

With a portfolio management service, you can benefit from an experienced team of experts who will take the time to understand your goals, risk tolerance, and current financial position before making any major decisions or adjustments. This allows them to develop a customized strategy suitable for both short-term and long-term growth. They will also work closely with you to review your portfolio regularly and make timely changes as needed. By working together, they can help ensure that your investments remain diversified and that you are always up-to-date on the latest developments in the markets.

What are the risks associated with investing in PMS?

Like any investment, PMS carries certain risks that investors should be aware of before deciding whether it is a suitable option for them. Some of the risks associated with investing in PMS include:

Liquidity Risk

The primary risk associated with investing in PMS is the lack of liquidity. Since the investment is made for a longer term, it can be challenging to exit at any given time or in case of an emergency.

Volatility & Fraud

Another risk is that investors may incur losses due to market volatility and other factors such as mismanagement or fraud on the part of the fund managers.

Trust

PMS are unregulated by SEBI, so investors must have complete trust and faith in the portfolio manager to ensure that their money is managed accurately and professionally.

There is also a higher potential for fraud since there are fewer regulatory checks on PMS, and investors may be exposed to additional risks when selecting an entity to manage their wealth.

Fees

Fees associated with PMS can be quite high than other investment options, such as mutual funds. Investors may have difficulty negotiating lower rates unless they invest large sums of money.

Difference between PMS and Mutual Funds

PMS	Mutual Fund
Provides personalized access to Professional Money Manager & their services	Provides access to Professional Money Management services.
A portfolio can be customized to investors’ specific need	There is no possibility of customization.
Investors can start with minimum investment of INR 50 lakh	Investors can start with minimum investment of INR 500/-

Can NRI invest in PMS?

Non-Resident Indians (NRIs) can invest in Portfolio Management Services (PMS) through NRE or NRO accounts. For NRIs, PMS offers the opportunity to diversify their investments across multiple markets without needing to invest large amounts of capital or be physically present in the country.

Moreover, there are some additional documentation required in such cases.