Portfolio Management Services

 

ABOUT 

Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, your account may be unique.

Discretionary:-Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager.

Non Discretionary:- Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the Investor. However the execution of trade is done by the portfolio manager.

Advisory:-Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the execution of the investment decisions rest solely with the Investor. Note: In India majority of Portfolio Managers offer Discretionary Services.

WHY TO INVEST?

PMS is a professional fund management service where experienced and high quality fund managers actually manage your money, identify the right investment opportunities, churn the money when opportunities arise and also give you constant updates and reports on your portfolio performance. If you thought this is like a mutual fund, then there is actually a slight difference. Unlike a mutual fund, a PMS creates unique portfolios for each PMS participant. That is why the minimum corpus required to qualify for a PMS Service is at around Rs.50 Lakhs in most cases. Of course, some of the PMS services are willing to accept lower amounts also. The key difference is that there is a lot more customization that happens in a PMS account to your unique needs and there is a unique portfolio which you can monitor and view online. To that extent, it is entirely transparent.

WHO TO INVEST? 

Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.

The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth.

The offerings are usually ideal for investors: who are looking to invest in asset classes like equity, fixed income, structured products etc ,who desire personalized investment solutions ,who desire long-term wealth creation ,who appreciate a high level of service.

PROS 

Professional Management:- The service provides professional management of portfolios with the objective of delivering consistent long-term performance while controlling risk.

Continuous Monitoring:-It is important to recognize that portfolios need to be constantly monitored and periodic changes made to optimize the results.

Risk Control:-A research team responsible for establishing the client's investment strategy and providing the PMS provider real time information to support it, backs any firm's portfolio managers.

Hassle Free:-Operation Portfolio Management Service provider gives the client a customised service. The company takes care of all the administrative aspects of the client's portfolio with a periodic reporting (usually daily) on the overall status of the portfolio and performance.

Flexibility:-The Portfolio Manager has fair amount of flexibility in terms of holding cash (can go up to 100% also depending on the market conditions). He can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favour of compelling opportunities.

Transparency:- PMS provide comprehensive communications and performance reporting. Investors will get regular statements and updates from the firm. Web-enabled access will ensure that client is just a click away from all information relating to his investment. Your account statements will give you a complete picture of which individual securities you hold, as well as the number of shares you own. 

Customized Advice:-PMS give select clients the benefit of tailor made investment advice designed to achieve his financial objectives. It can be structured to automatically exclude investments you may own in another account or investments you would prefer not to own. For example, if you are a long-term employee in a company and you have acquired concentrated stock positions over the years and have become over exposed to few company's stock, a separately managed account provides you with the ability to exclude that stock from your portfolio.

CONS 

Cost:- One of the big downsides of a PMS is the higher costs. While the expense ratio in case of an equity mutual fund is around 1.75-2.25%, the expense ratio in case of PMS can range from 3.5-5.5% depending on the extent of customization. That takes away a good chunk of your returns, especially in a bad year. Also, there are participatory schemes wherein the PMS will be entitled to a higher commission in the event of out performance.

Risk Of Over Diversification:- Sometimes portfolio managers invest funds among large categories of assets whose control becomes impossible. In his efforts to diversify the risk it goes beyond the limit to manage efficiently. Loss arising in such situations is quite high and can bring serious repercussions.

No Downside Protection:-Portfolio management only reduces the risk through diversification but does not provide full protection. At times of market crash, the concept of portfolio management becomes obsolete. 

Faulty Forecasting:- Portfolio management uses historical data for evaluating the returns of securities for investment purposes. Sometimes the historical data collected is incorrect or unreliable which leads to wrong forecasts.

HOW TO INVEST?

Apart from cash, the client can also hand over an existing portfolio of stocks, bonds or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However the Portfolio Manager may at his own sole discretion sell the said existing securities in favour of fresh investments.