What are the benefits of PMS?

PMS or Portfolio Management Services is a customized investment avenue for High Net Worth and Ultra High Net Worth clients. PMS are similar to Mutual Funds with a higher degree of customization. While the cost involved in investing in a PMS is comparatively higher, the benefits of PMS are numerous.

Types of Portfolio Management Services

To understand PMS benefits, it is essential to learn about the types of PMS:

Discretionary PMS

Under discretionary PMS, the fund manager has the total discretion to make investments based on his judgment. In the case of discretionary PMS, the fund manager uses his knowledge and executes trades in line with the expectations and financial plan of the investor i.e., the fund manager has a free hand in decision making.

Non-Discretionary PMS

in a non-discretionary PMS, the client must approve transactions executed to boost their portfolio. It is a consultative investment approach wherein the portfolio manager suggests investment ideas.

Benefits of PMS

The numerous benefits of availing portfolio management services are extensive. Here are some of the most important ones:

Asset diversification

The most important benefit of PMS is the investment research and asset diversification involved. PMS is professionally managed by experienced fund managers with investment decisions corroborated by technical and fundamental analysis. Fund managers with management expertise determine the entry and exit timelines.

Secondly, Portfolio Managers use a holistic approach and enable clients in overall portfolio diversification, thereby aligning with your overall financial planning. Thirdly, PMS offers a wide variety of investment avenues including real estate investment trusts, commodities, structured products, debt instruments, and foreign assets. Price movements for such assets are not directly dependent upon the equity markets and act as an efficient diversification tool. The ease of investment in such assets is significantly lower and is fast-tracked if executed through a PMS.

Portfolio Customization

The USP of any PMS is the level of customization available for individual investors. PMS allows an investor to choose the asset type mix in line with the risk appetite. The portfolio is customized as per the investment objective and liquidity requirement of the investor. In addition, for non-discretionary PMS, the client is required to approve the investment decisions of the portfolio manager. Hence, there is an element of control with the investor. The investment decisions of an investor do not have any bearing on options obtainable to any other investor. PMS has isolated and independent holdings for each of its investors.

Governed by Regulations

PMS and fund managers are tightly monitored by regulations. Portfolio managers are required to periodically submit transaction statements, holdings, costs details, etc. to government authorities. They need to provide investors with their holding statements, revenue, expenses, comparative performance of funds, benchmarking, etc. Thus, PMS provides complete transparency to its investors and facilitates informed decision-making.

Transparent Fee Structure

Further, PMS’ extends flexibility and transparency regarding the fee structure. Investors may select a fixed or flexible fee structure. Performance fees are shared as a percentage of the total revenue earned more than the determined hurdle rate. Investors are proffered detailed statements mentioning the expense ratio, fees charged regularly.

Realtime Access

Most PMS are tech-savvy and have established online portals to set up online access for investors. They are presented with real-time access to their portfolio values, holdings, expenses, etc. Research reports and related information are also available for investors to understand the rationale for investment. An option to redeem, trade, or top-up the portfolio online may also be available to an investor. Some PMS also use artificial intelligence and robotics to analyze investor objectives and design an efficient financial plan.

Dynamic Portfolio Rebalancing

PMS partake in an aggressive investment approach and render dynamic portfolio rebalancing services. Basis market fluctuations and volatility, fund managers reshuffle the exposure across different asset classes. The focus is not only on the short-term and long-term gains but also on the overall quality of the portfolio.

Final Word

Ancillary benefits include direct investment in the name of the investor (unlike mutual funds), in-depth investment rationale, and a one-stop shop for investing. On the downside, investing in a PMS is subject to capital gain tax and reduces tax efficiency. It also involves tedious paperwork due to strict regulations. All-in-all, it is worth considering for HNI and UHNI clients.

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Frequently Asked Questions Expand All

The charges for portfolio managers differ from one person or firm to the next. However, the management fee varies between 0.20% to 2.00% based on the management style and size of the investment.

The primary factor to consider while choosing a PMS is the depth of knowledge the individual possesses about the entire financial market. It is also important to have a portfolio manager that is completely transparent with the transactions and profits being made through your investments. IIFL is an example of a great portfolio management service provider that checks out across both criteria.