What is PMS and does it help generating better returns?


PMS or Portfolio Management Services is a personalized service wherein a professional fund manager who specializes in the subject manages the Stock investing for an investor. PMS can also include other instruments like Bonds, Real Estate or Commodities as a part of portfolio, however, managing Stocks portfolio is most common and popular of all. In this article let’s try to answer the questions like, who can run a PMS, whether one should invest in PMS, what is the time frame for investing, what is the minimum amount required, what are the best PMSs in India, what are pros and Cons of investing in PMS.

Who can run Portfolio Management Services?

In India a Portfolio Manager can be an individual or a company. Any PMS must fulfill the criteria as laid down by market regulator SEBI. Every PMS must register with SEBI as Portfolio Manager to run Portfolio Management Business. This means that PMS is a well-regulated investment instrument in India. Each Fund Manager will operate within the regulations framework as designed by SEBI.

How does PMS work?

Simply, you as an investor hand over your money to a Portfolio Manager who takes care of investment decisions and you as an investor do not have to be bothered about managing the money.

Technically, PMS are of different types –

Active or Passive Portfolio Management:

As the name suggests, in case of Active PMS the Portfolio Manager is actively involved in buy and sell decisions of a security (stock). This type of active management helps in generating better returns as compared to Index like Nifty. However, in case of Passive Portfolio Management the role of the Portfolio Manager is silent. He tries to mimic the positions of an Index like Nifty. As in passive PMS the positions are very similar to an Index, the returns too are similar to the Index. Since the Active Management needs more efforts and expertise the fees are usually higher as compared to Passive Portfolio Management.

Discretionary and Non-Discretionary Portfolio Management:

In Discretionary Portfolio Management all the rights of taking buy or sell decision about a security or stock lies with the manager. The portfolio manager decides what to buy, when to buy and how much to buy. Similarly, he is also responsible for the sell decisions. In Non-Discretionary management the role of the manager is limited to research. In this case the manager identifies a good stock, but the decisions such as how and when lies with the investor. Generally speaking, in case of non-discretionary management the investor does the management part and the manager does the advisory part.

Should you invest in PMS?

Minimum investment in PMS as per the regulations is 50 Lac. So, if you afford to take risk of Rs 50 lac or above, you can decide to invest in PMS. This is possible if you have some substantial investments other than PMS which are liquid and safer in nature, you can decide to invest these 50 lacs or above in a PMS. Moreover, since a PMS generates higher returns than the market by taking higher risk, you should invest if this fits in your investment thesis.

What is the time frame for investing?

Primarily, the investing time-frame can be short, medium or long-term. Each PMS operates on a pre-determined strategy as per investing time-frame, directed by goals. Mismatch in PMS strategy and investing time-frame, may prove to be a barrier in the timely achievement of goals. For any Equity type PMS, you should think of long term, though in most cases you have an option to exit at any point of time.

As mentioned above you may give it a try to PMS, if you can afford to risk higher amounts and are able to invest minimum Rs. 50 Lac and you are aiming at higher exposure in equities.


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