Sanjay was finding it difficult to keep track of his equity investments. While he understood the nuances of the market quite well, he did not have the luxury of time to monitor his investments.

So after much deliberation he decided to go in for a Portfolio Management Service (PMS).

The result – while he concentrates on furthering his career, his portfolio manager does ditto to his investments.

PMS, as it is popularly known, is offered by most brokerages and asset management companies in India. Professional managers handle your money and spread your investments across equities, bonds and even mutual funds to fit your personal investment goals and risk appetite.

While the minimum portfolio size for investment is Rs 5 lakh, it isn't sacrosanct. Most brokerages and AMCs peg the minimum investment limit at Rs 10-25 lakh.  

For instance, while Kotak Securities takes in a minimum of Rs 10 lakh for its PMS, Parag Parikh Financial Services requires Rs 5 lakh only.

But if suggestions put out by SEBI in its concept paper released a couple of months back are agreed upon, the minimum limit could stand increased to Rs 25 lakh. You can give the minimum amount as cash and/or securities.

Is PMS for you?

If you have the money but no time or skills to build and manage your investment portfolio, PMS is an option you can definitely consider.

Depending on your risk appetite, investment preferences and goals, you will typically have two options to choose from - standard portfolio and tailor-made portfolios. Note that the latter requires a higher investment commitment from your side – on an average, ranging upwards of Rs 25 lakh.

Mutual funds also promise a long-term wealth creation opportunity. But while they do operate on similar lines, you should go for a portfolio management service if you need personalised service and some amount of handholding. For instance, investing in mutual funds will require you to have some idea of asset allocation in the minimum. But with PMS, your fund manager does that for you; of course, only after a detailed discussion on your risk profile, investment goals and savings habit.

PMS also doesn't require you fret and sweat about timing your investments as the portfolio manager, adept in his business chops, would take care of that.

What type suits you best?

There are two types of portfolio management services that you can opt for depending on your fund availability, knowledge of investments and time in hand.

Discretionary : In this, the portfolio manager individually and independently manages the funds of each client in accordance with their needs. That is to say, the fund manager uses his discretion to manage your portfolio.

While you will have complete access to what is being bought and sold, your approval isn't required at every step. You will be required to give your portfolio manager a power of attorney for the same. But note that investments will be made in your name and stocks will get reflected in your demat account only.

Non-discretionary : The non-discretionary portfolio manager manages the funds in accordance with the directions of the client. This means, the portfolio choices are made after discussing with you. This will require an active participation, not to mention sufficient knowledge of markets and investments from your side.

At what cost?

There is no uniform fee structure for PMS as it varies across brokerages and investment slabs. For instance, Motilal Oswal Securities charges an upfront fee of 1 per cent and fixed management fee of 0.75-1.5 an cent of your assets under management across slabs.

There is also a performance-based fee of 10 per cent profit sharing on high watermarking basis. High water mark charges means that the performance fee only applies to net profits, after having recovered losses if any in the previous years.

Geojit BNP Paribas offers two fee options.

The first entails 3 per cent an annum charged @0.75 per cent at the end of every quarter and the second, 1 per cent an annum, charged @0.25 per cent at the end of every quarter plus a performance fee of 20 per cent on gains over and above the 12 per cent an annum hurdle rate.

Note that while there is no lock-in period in case you opt for a PMS, there will be an exit load; which varies across service providers.

How to choose a PMS

Go with well-known and trusted names only. Make it a point to compare notes on the fee structure and performance record and insist on meeting the portfolio manager (team or representative) for a better perspective before you decide on one.

Also speak to existing clients about performance and service levels.

However fanciful the idea of having a personal portfolio manger may seem, know that it isn't all hunky dory. For one, PMS isn't as monitored and regulated as mutual funds.

This makes it imperative that you keep tabs on your portfolio. Remember, at any point in time, you can question the portfolio manager on performance if you aren't happy about it.

Besides, regular monitoring can avoid repetition of cases when portfolio managers had invested in penny stocks, dabbled in derivatives etc, only to book significant losses.

Two, there is no way you can objectively assess the track record of portfolio managers as you cannot compare the performance across service providers and clients – PMS typically make performance disclosures only to their clients. Mutual funds definitely trump over PMS in this regard.

The bottom line is go for PMS only after you have examined and understood the risks and returns trade-off quite well.

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