What is PMS?
Portfolio Management Service (PMS) is a professional financial service where experienced managers and professionals handle your stock investments with the help of a research team. Handling stock portfolios in a Demat Account can be tough for many investors. Portfolio manager charges a fee for these services, which is regulated by SEBI. The fee can be fixed, profit-sharing, or a combination of both.
How is PMS different from a mutual fund?
While both mutual funds and PMS are diversified investments managed by a professional fund manager / portfolio manager, there are key differences which makes PMS a unique asset class. Here are some key differences:
1. Investment Approach: Mutual funds pool investments from multiple investors and follow a standardized investment approach, often mirroring market indices. PMS, however, offers personalized portfolio management tailored to individual investor needs and risk profiles. PMS investors do not hold a pool of securities in form of units. They instead hold actual shares in their own names and in their own DMAT accounts.
2. Pool impact: Since PMS investors hold their own portfolios and own shares, they are not impacted by the actions of other investors in the fund. If panic grips and investors start selling off, all investors in the pool get impacted. In PMS, though, investors portfolios are insulated from the actions of others.
3. Investor profile: Mutual funds cater to investors of all sizes, allowing investments for as little as Rs 500. In contrast, PMS is tailored for larger investors, with a minimum investment requirement of Rs 50 Lakhs. Consequently, the strategies utilized in PMS differ from those employed by mutual funds.
4. Regulation: SEBI closely oversees both mutual funds (MF) and Portfolio Management Services (PMS), with a primary focus on investor protection. Due to its accessibility to investors of varying sizes, mutual funds adhere to strict regulations, offering limited flexibility. In contrast, PMS regulations offer a degree of flexibility to accommodate the needs of large investors.
Types of PMS
Discretionary Portfolio Management: In this approach, the portfolio manager takes charge of managing your portfolio. Considering your goals, risk tolerance, and investment timeframe, the manager devises a strategy that aligns best with your portfolio. For instance, if you're inclined to take risks, they might suggest equity-oriented funds, whereas for those preferring a cautious approach, debt-oriented funds could be recommended.
Non-Discretionary Portfolio Management: Under this method, portfolio managers provide investment advice, but the ultimate decision rests with you. After you give the green light, the managers execute the necessary actions on your behalf.
Who should invest in PMS?
If you're a small or new investor, it's best to begin your investment journey with mutual funds. However, if you have a substantial portfolio and investing experience, you should think about allocating 25% - 30% of your equity exposure to PMS. For larger investors, it's wise to choose schemes designed for High Net Worth Individuals (HNIs) rather than generic ones. The minimum investment required in PMS is 50 Lakhs.
How to invest?
There are over 400 SEBI registered PMS houses, each with multiple strategies, making the choice daunting and difficult. At Goalstox, we can help you with selecting the right scheme for you to fit your goals and risk profile.