Portfolio Management Services
What Is PMS?
PMS (Portfolio Management Service) is a tailor-made professional service offered to cater to the investment objectives of select investors. PMS providers invest directly in securities through customized portfolios. Unlike mutual funds, the investors’ assets here are not pooled into one large fund. This structure allows the fund managers to take concentrated calls on their high-conviction stocks without too many regulatory and operational constraints prevalent in a mutual fund portfolio.
Why Choose PMS?
PMS provides a highly personalised investment experience with several advantages over traditional mutual funds:
- Flexibility and Execution Strategy: The biggest advantage that PMS enjoys over MFs is that they are allowed to trade in futures & options which allows them to hedge their risks.
-Higher Conviction bets: Additionally, they can take higher conviction bets and move more swiftly between positions as their mandates are more flexible. A well-managed PMS can thus outperform a mutual fund by a great margin.
-PMS provide Enhanced Transparency: as Investors receive detailed insights into every transaction within their portfolio.
Disadvantages of PMS?
While PMS offers many benefits, it also has certain drawbacks:
- Selection Challenges: With approximately 400 plus PMS options available in India, selecting the right one can be challenging.
- High Costs and Exit Loads: Fund management fees for PMS are generally higher than those for mutual funds, including management fees, performance fees, and exit loads. Many PMS have exit loads of up to 3 Years!
- Can be very high risk: Many PMS options take a much higher risk than mutual funds in the quest to generate higher returns.
How PMS Works
Most PMS options available in India are discretionary where a new Demat account is opened in the name of the investor and the PMS Fund Manager takes a power of attorney to make transactions on that account. A PMS then buys and sells securities that are all in this demat account vs a pooled account of a Mutual Fund.
Who Should Invest in PMS?
According to SEBI regulations, a minimum investment of ₹50 lakhs is required for PMS. It is particularly suitable for:
- High Net Worth Individuals: Individuals whose Equity allocations are in Crores and have the risk profile to handle PMS investments.
- High-Income Business Owners: Those with significant earnings seeking tailored investment solutions.
- Inheritors of Family Wealth: Individuals managing substantial inherited assets.
- ESOP Liquidation Beneficiaries: Those who have received substantial benefits from Employee Stock Ownership Plans (ESOPs)
Key Points to Note
1. The minimum investment for all these funds is INR 50 Lakhs (SEBI Mandate).
2. Some Funds have exit loads while others don't. Exit loads can range from 1% for 12 months to 3%,2%,1% for 12,24,36 months.
3. Most funds have an option of a 2.5% fixed management fee. Or a Structure with a lower fixed fee and a performance fee based on a hurdle rate. Some also have options of only performance fees.
4. For example, the management fee for First Global IS50 is 2% up to a hurdle rate of 14%. There is a performance fee of 10% of returns in excess of the hurdle rate. To give you an example, if the IS50 fund delivers a 19% return in one year, there will be a performance fee of 0.5% (10% of (19-14)) and a management fee of 2% giving you an effective return of 16.5%.
5. These funds will follow the standard Indian taxation. Tax events will happen on each trade (not like mutual funds where they happen only when you choose to redeem the funds).
6. As individual trades are made in your demat account, there will be associated transaction charges for these trades that are not there in Mutual Funds.
How can we at SMFS help you?
?
At SMFS, we specialise in finding top-performing PMS options that are catered to your risk profile. Funds that ideally deliver better returns than mutual funds without taking too much risk or fees.
Our team conducts comprehensive market research to identify PMS funds with distinct advantages, including those with no exit loads and no fixed fees.
We become your partners on your journey towards a secure future and help you experience personalised investment management that aligns with your financial goals and risk profile.
Contact Us
-Reach out to us for a Free Consultation.
-Please fill out the form and book an appointment with us.