Portfolio Management Services in India

Portfolio Management Service (PMS) is a facility where an experienced individual or an organization handles all the investments to be made by the client. Portfolio management is thus managing an appropriate combination of securities/assets to generate maximum return while reducing the risk through proper diversification of the assets. All individuals and non-individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate can invest through PMS. PMS offers a more personalized management of the finances of the individuals. The portfolio manager invests according to the needs and objectives of the client. The ownership of the assets lies with the client; the managers just take their salary or a fixed percentage which can vary from person to person.

An investment portfolio can include a variety of things and is usually 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 through which he can provide the client with a fixed rate of return at minimal risk. 

PMS is a very unique thing as whole of the service is tailored as per the clients return requirements and their willingness to assume risk. An Investment Policy Statement (IPS) is drafted by a PMS to understand the financial position and needs of the client. Before executing the optimum portfolio, PMS also studies the various constraints such as time horizon, tax applicability, liquidity, and other unique considerations of the client. 

This article will tell you about the following topics to help you understand the Portfolio Management Service better-

• Features of PMS

• Benefits of PMS

• Types of PMS

• Difference in Mutual funds and PMS.

• Portfolio management process.

• Recent changes in Portfolio Management Services in India.

Features of PMS

1. With a portfolio manager the headache of monitoring the assets and securities lies with the experts. They take all the decisions with their experience and expertise.
2. Clients get higher rate of returns with a systematic plan of investment.
3. The job of the portfolio manager is to reduce the risk of the client’s investment and get them maximum profits. 
4. The PMS providers have customizable portfolios for the investors which the investors can choose as per their financial goals and requirements. 
5. You get a piece of expert advice across instruments from debt to equity to gold and mutual funds.
6. The performance of the portfolio crucially depends on the portfolio manager’s ability to understand the market and use it to his will. 
7. A precise and clear investment strategy can give PMS an upper hand over other schemes available in the market. It is an absolute necessity for the investor to understand the strategy of investing before committing funds. If the strategies are complex, the viability of such strategies over the long-term should be outlined transparently.

Benefits of Portfolio Management Service 

• Customized Advice for individual clients

Through PMS the clients get the benefit of tailor made investment opportunities specially designed to achieve their financial objectives. 

1. Track Record of portfolio models

Portfolio managers have different models of investments pre set for the clients on the basis of general guidelines; these models have a track record and can be matched against the market to keep in check their performance parameters.

1. Customer support

As the investment ratio is high the customers get support in each and every step of the investment. They get briefed completely and are made sure to understand the complete risks and the other volatile factors involved in the process.

• Professional Management

The service provides professional management of portfolios with the objective of delivering consistent long-term performance while trying to control risk.

• Continuous Monitoring

PMS provides with constant monitoring and support to keep the client investment safe as the securities market is dynamic and changes can occur within seconds. 

• Risk Control

A research team is responsible for establishing the client’s investment strategy and providing the PMS provider real time information to support it. People are always studying the market to mitigate the risk as much as possible.

• Flexibility

The Portfolio Manager has fair amount of flexibility in terms of holding cash. He can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favor of compelling opportunities.

• Transparency

PMS provides with comprehensive communications and performance reporting to the clients. Investors get regular statements and updates from the firm. Web-enabled access ensures that client is just a click away from all information relating to his investment. 

What are the types of Portfolio Management Services?

1. Active Portfolio Management

This form of portfolio management has a higher level of risk but the profit ratios are also high. This form of portfolio management aims at beating the performance of a market index such as Nifty. An active portfolio manager will take different positions than that of the tracking index, actively buy and sell securities as per institutional research to create more returns than the index.

1. Passive Portfolio Management

The rate of return index is comparatively low in this mode. This PMS strategy aims to mimic the performance of an index by investing in the same securities with similar weights. This is known as indexing or index investing. Incurring transaction costs leads to an overall return being lower than the tracking index. The returns of the portfolio are pegged to the market returns.

1. Discretionary Portfolio Management

The portfolio manager is given complete control of the portfolio and is free to adopt any strategy which is suitable to the portfolio strategy. Such PMS demands higher involvement for decision making justifying higher fees associated with discretionary portfolio management. This is the best option for clients with limited time and knowledge of investing.

1. Non-discretionary Portfolio Management

This PMS mode will only suggest the investment ideas while the investor will be responsible for choosing the recommendation and timing. This employs PMS in an advisory capacity as the final call rests with the investor instead of the portfolio manager. 

Difference between Portfolio Management and Mutual Funds

The following are the differences between Portfolio Management and Mutual Funds-

PMS process (can insert an infographic)

The portfolio management process is the procedure of understanding the needs of the client, explaining the portfolio to them, allocating their resources to the portfolio, managing the investments and mitigating the risks.

 The 3 steps of the portfolio management process are-

1. Planning

Planning the first step of portfolio management and involves the making of the Investor Policy Statement (IPS). Investor policy statement defines the willingness and the ability to take risk from the investor’s point of view. It also sets the objectives of the investors in terms of their risk and return keeping in mind the IPS of the individuals.

2. Execution

Execution is the second step and involves the allocation of the client’s money into securities.

3. Feedback

In the third and final step of portfolio management, the portfolio manager monitors the performance of the portfolio and makes changes to the assets wherever they are falling short of their expected returns.

Recent changes in Portfolio Management Services in India

Some recent changes and new regulations have been introduced by SEBI whose implementation has been pushed due to the pandemic. The changes are as follows-

1. No upfront fees will be charged, operational fees excluding brokerage cannot exceed 0.5 percent per annum of the client’s average AUM.
2. A maximum exit load of 3 percent can be charged in the first year, 2 percent in the second year, and 1 percent in the third year. No exit load applicable after three years.
3. Clients will have to be on boarded directly, avoiding client engagement with the intermediaries and distributors.
4. The CA has to certify the minimum specified net worth of portfolio managers of Rs 5 crores.
5. A monthly report is mandatory, with performance reported net of expenses and after-tax. Performance return has to include cash holdings and investments in liquid funds.

The disclosure norms for PMS providers have been tightened. As per the change in guidelines, it is mandatory for operators of PMS schemes to disclose the details of distributor’s commissions to the investors every quarter. This regulation will bring PMS in line with the MF industry in that the investors will be made aware of the commissions earned by distributors.

SEBI also mandated the contents of the performance report, which is to include the composition and value of the portfolio along with a description of securities and goods, cash balance, and aggregate value of the portfolio as on the date of the report. 

SEBI has also mandated the portfolio managers to utilize the services of certified distributors who have AMFI registration numbers or have cleared the NISM Services V-A exam.

With real estate in a contradictory state of affairs, equities have witnessed a significant uptick in investment. Mutual funds have been unable to perform consistently, and PMSes have stepped in to gain market share. Investors who were traditionally seen investing in real estate have now resorted to PMS schemes. 

The market regulator has been striving to bring the PMS industry at par with the MF industry in terms of investor-friendliness. To maintain oversight, SEBI has to ensure consistency and transparency in the reporting framework. The fee structures for PMSes across various schemes have been under the radar, comparing them with the expense ratios of mutual funds. The spur in demand of PMS in India should be in conjunction with the regulatory ecosystem in place to prevent miss-selling or misappropriation of funds.

Why choose SKYCAP?

The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth; Skycap is capable of providing high end services to these clients and is well versed in handling such big responsibilities.

With Skycap you get complete transparency and personalized customization. We understand that all investments involve a certain amount of risk but that is where you trust Skycap because each and every portfolio is made as per the conveniences of the client and taking their risk factors and objectives in mind.

Financial markets are complex to understand and investing in financial markets require market knowledge, proper research & analysis, experience, regular monitoring and it is a time consuming process for an individual Investor. Skycap on the other hand has a team of experts who have years of knowledge and are able to understand the client’s needs and match them efficiently with the current market scenario. At Skycap, a group of experienced professionals do extensive research and analyze the securities for the client. 

Trust Skycap! Trust Right!