What is the Minimum Ticket Size for PMS?

A portfolio management service (PMS) is a customized investment product that is designed based on the investor’s unique needs and objectives. It is a more customized form of mutual funds since the mutual fund is essentially a mass broadcaster of strategy. However, there is a minimum investment in PMS that is needed, and we will come to that later. The PMS minimum investment has been constantly evolving over the years.

The unique feature of PMS is that it is managed and run by a group of experienced professionals with the capacity to do extensive research and analyze securities for the client. The PMS minimum investment is normally handed over to the service provider by the client and from that point, the journey begins. The PMS essentially tries to optimize the returns by investing in securities like equity, fixed income, commodities, etc. But more importantly, the minimum investment in PMS makes it a slightly exclusive product making unique services possible and feasible.

Minimum Investment in PMS

Before we get into the concept of minimum investment in PMS, let us first understand who is eligible to invest in a PMS. The following categories of investors can invest in a PMS, subject to PMS minimum investment capacity and willingness. Here is the list.

  • Individual investors subject to completing KYC
  • A Hindu Undivided Families (HUF)
  • Partnership Firms
  • Sole Proprietorships
  • Association of Persons or AOP
  • Private and Public Limited Companies
  • Non-resident Indians, except certain geographies
  • Overseas corporate bodies, trusts, societies; subject to RBI approval.

Now we come to the minimum investment in PMS or the minimum ticket size as it is called. The minimum investment in PMS has evolved. For example, the PMS minimum investment started with Rs.5 lakh in 1993 when the PMS regulations were first announced. Later, this was hiked to Rs.25 lakhs and in November 2019, SEBI further hiked the minimum investment in PMS to Rs.50 lakhs. SEBI has also stipulated that in case of a shortfall in individual accounts, the gap must be made good within a specified period.

There has been a lot of debate about the minimum investment in PMS, which many feels has been a dampener to the growth of the PMS segment. However, this PMS minimum investment is purely designed to introduce an element of safety for the investors and to ensure that too many retail investors do not get drawn into PMS, which is a high-risk venture more suited to high net worth investors. The whole idea of the minimum investment in PMS is to keep it an exclusive service for investors with a higher risk appetite and a better understanding of risk. It is in this conte that the enhancement of the minimum investment in PMS to Rs.50 lakhs must be viewed.

The minimum investment in PMS also ensures that only serious investors go for this service with the necessary risk appetite and understanding of the markets. Also, the PMS minimum investment condition puts a greater onus on the PMS fund managers to put more focus on a smaller family of investors to bring the best quality of service for them.

Why Should you Invest in PMS?

What is the logic behind opting for PMS? Financial markets are complex and hard to understand. Hence it is not wise to always make your own decisions. Such actions require proper knowledge, experience, research, and analysis. Additionally, it also requires continuous monitoring and is therefore an extremely time taking task for an individual. Quite often, people are caught up in their professional demands and find it difficult to handle the plethora of factors that impact investments. That is why those who can afford the PMS minimum investment seriously look at the PMS option.

Practically, it is not viable for an individual to manage the complete gamut of asset classes in the portfolio besides over and above the staggering demands of his / her primary profession. It would only end up making portfolio and asset allocation a mess. That is the reason, investors hire experts who manage their portfolios on their behalf and in the best of their interest. This PMS service is a unique service for those who can afford the PMS minimum investment and do not have the time and the wherewithal to handle portfolios at a granular level.

Are PMS similar to mutual funds? On the face of it, the PMS might sound similar to mutual funds but there is a big difference. In the case of PMS, it is the customization that makes PMS stand out from the crowd and be able to deliver a unique value proposition to the client. You can describe the advantage of PMS in one word as Tailor-made investing. Engagement of the investor with the fund managing team, multiples rounds of sittings with the investor, taking a holistic view of the needs and risk appetite of the investor are all factors that a PMS considers but a mutual fund does not.

Remember, the whole idea of PMS minimum investment is that the typical PMS investor is well aware of what is being done to their money and how it is carrying them towards their financial objectives. PMS is a lot more performance and result-driven. That is evident from the high level of performance fees and low levels of fixed management fees. In act, the very incentive of the fund manager is directly linked to the performance that the manager delivers to the client. Normally, the real incentives for the fund manager only kick in after the hurdle rate of return is crossed. Remember these are hard hurdle rates set so that the manager cannot earn fees on the same extent of return and must necessarily exceed the high water mark for being eligible for further incentives. This will automatically ensure that the manager is aligned to the interests of the customer and acts in their best interest. There are also other reasons you can prefer PMS and they include transparency, convenience, constant tracking, etc.

What are the Types of Portfolio Management Services?

Broadly, portfolio management services can be classified into two categories.

  • Discretionary PMS gives almost a free hand to the portfolio manager to make the investment and portfolio decision on behalf of the investors, without consulting them. Currently, most companies offer discretionary PMS.

  • Non-discretionary PMS is more advisory wherein the portfolio manager advises on suitable investments depending on the investor’s risk appetite and objectives. The decision to invest or not is left to the investor, but trade execution is done by the portfolio manager.