Portfolio Management Service (PMS) is a facility offered by a SEBI registered portfolio manager with the singular intent to achieve the required rate of return within the desired level of risk for the client. That is a specialized service and entails charges called portfolio management charges. An investment portfolio can be a mix of stocks, fixed income, commodities, real estate, and other structured products but getting them, all together is quite a complex task. That is why portfolio management charges are quite steep in the Indian context.
The portfolio manager is a licensed investment professional specializing in analyzing the investment objectives of the investor and brings a vast knowledge of various instruments in the market. To compensate for this expertise, charges are levied at a fairly steep rate. Also, these portfolio management charges are meant to compensate the portfolio manager for making informed decisions regarding investments in securities, in a manner that is best suited to the investor. Let us now look at portfolio management charges or PMS charges in greater detail.
The PMS charges the following fees and these may vary from one PMS provider to another. We will first look at a list of all portfolio management charges or PMS charges as well as actual portfolio management charges imposed by some of the leading PMS players in India. The charges are decided at the time of investment and are vetted by the investor. Here is a quick look at the list of PMS charges.
Entry Load is charged by most of the PMS schemes and these charges vary between 1% and 3%. These PMS charges are only charged at the time of buying into the PMS.
There is a recurring cost in the form of Management Charges. After all, the portfolio has to be managed. The portfolio management charges will surely be higher than mutual funds because mutual funds don’t customize. Every Portfolio Management Services scheme charges Fund Management charges to its clients. These charges may vary from 1% at the lower end to 3% at the higher end and this varies vastly depending upon the PMS provider. These PMS charges are levied every quarter to the PMS account.
This is a unique feature of PMS charges and it is called Profit-Sharing. Not all PMS schemes levy this charge but some of the more aggressive names in the market do charge a share of the profits generated for the client. Most PMS schemes levy profit-sharing charges over and above the fixed fees. Normally, the way these PMS charges work is that the PMS service provider guarantees a basic profit. Only profits above the threshold are eligible for profit sharing. For example, the PMS can say, that there would be no profit sharing up to 10% returns. However, anything above 10% returns would be split between the client and the PMS in the ratio of 80:20.
Finally, there is the exit load that is levied if the customer chooses to exit the PMS before a threshold of 1-2 years. Normally, there is no exit load if the client stays in the PMS for more than 2 years. This cost has been quite controversial in recent times and is likely to stay as most PMS service providers try to encourage stickiness among customers.
In addition, to the above charges, PMS service providers levy additional charges on the customer for several services provided like custodial fees payable to the custodian, Demat charges, and Demat movement charges payable to the NSDL / CDSL. In addition, PMS also levies the audit fees to the client and in many cases, even the brokerage or transaction and statutory charges are also billed to the client. Normally, such billing is done at a much higher rate on cash market volumes concerning what the PMS pays to the broker.
PMS charges levied by major PMS service providers in India
PMS charges levied by Porinju Velliyath include a 2% fixed fee and 10% above 10% as profit participation fee.
PMS charges at Motilal Oswal include 2-2.5% as fixed fee and 0.3% brokerage per cash market transaction as well as 1-2% exit load.
The PMS charges at ASK Wealth include a 2.5% fixed fee and 1.5% plus 20% above 10% returns and profit participation.
PMS charges at Alchemy PMS are restricted to around 2.5% fixed maintenance charges per year.
Kotak PMS levies PMS charges at 2.5% as fixed fee per year and 0.1% brokerage per transaction as well as 1-3% as exit load depending on the holding period
ICICI PMS levies PMS charges at 1% to 3% fixed fee per year as well as 2% to 2.5% as exit loads based on the timing of exit.
Birla Sun Life PMS levies PMS charges at a 2.5% upfront fee and 1.2% to 2.2% as exit loads depending on the holding period.
Angel Broking puts PMS charges at a 2% upfront fee and 0.5% as brokerage per transaction in the cash segment.
Portfolio Management Service (PMS) is a facility offered by a portfolio manager with the intent to achieve the required rate of return within the desired level of risk. An investment portfolio can be a mix of stocks, fixed income, commodities, real estate, other structured products, and cash. A portfolio manager is a licensed investment professional who specializes in analyzing the investment objectives of the investor and has a vast knowledge of the various instruments in the market.
PMS is a customized service offered to High Net-worth Individuals (HNI) clients. The service is tailored as per the investor’s return requirements and the ability and willingness to assume risk. An Investment Policy Statement (IPS) is drafted by a PMS to understand the financial position and needs of the client. The portfolio manager ensures that the return requirements coincide with the risk profile. PMS studies various constraints such as time horizon, tax applicability, and liquidity.
The portfolio manager, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, agrees in writing with the client, clearly defining the relationship and setting out mutual rights, liabilities, and obligations relating to the management of funds or portfolio.
The charges vary from one portfolio manager to another and would depend on the client relationship with the PMS provider and past business as well.
Some of the charges include entry load, annual fees, performance linked fees, exit load, reimbursement for brokerage, custodian charges etc.
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