Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, your account may be unique.

 

What is a Portfolio Management Service (PMS)

A Portfolio Management Service (PMS) is a service that helps investors manage their investments. It is a tailor-made service that is designed to meet the investor's financial goals, risk tolerance, and investment expectations. A portfolio manager will help the investor allocate their funds into different assets such as equity, stocks, income funds, and government securities.

 

Types of portfolio management services in India

There are two main types of portfolio management services in India: active and passive. There are also two sub-types of portfolio management services: discretionary and non-discretionary.

Active portfolio management

Active portfolio management is a type of PMS where the portfolio manager actively monitors the market conditions and makes frequent changes to the portfolio composition, allocation, and rebalancing. The aim of active portfolio management is to generate higher returns than the benchmark index or the market average by exploiting the market inefficiencies, trends, and opportunities. Active portfolio management involves higher risk, higher cost, and higher involvement of the portfolio manager.

Passive portfolio management

Passive portfolio management is a type of PMS where the portfolio manager follows a predefined strategy and does not make frequent changes to the portfolio composition, allocation, and rebalancing. The aim of passive portfolio management is to replicate the performance of the benchmark index or the market average by investing in a fixed basket of securities that mirror the index. Passive portfolio management involves lower risk, lower cost, and lower involvement of the portfolio manager.

Discretionary portfolio management

Discretionary portfolio management is a type of PMS where the portfolio manager has the full authority and discretion to make all the investment decisions on behalf of the investor. The investor does not have any say or control over the portfolio composition, allocation, and rebalancing. The portfolio manager acts as a fiduciary and is responsible for the performance and risk management of the portfolio. Discretionary portfolio management offers convenience, expertise, and trust to the investor.

Non-discretionary portfolio management

Non-discretionary portfolio management is a type of PMS where the portfolio manager acts as an advisor and provides recommendations and suggestions to the investor. The investor has the final say and control over the portfolio composition, allocation, and rebalancing. The portfolio manager acts as a facilitator and is not responsible for the performance and risk management of the portfolio. Non-discretionary portfolio management offers flexibility, transparency, and involvement to the investor.

FAQ's

PMS offer various benefits such as customization, expertise, transparency, and flexibility to the investors. However, PMS also involve higher risk, higher cost, and higher involvement of the portfolio manager. Therefore, you should do your due diligence before investing in such services.

 

Is portfolio management a good service?

Portfolio management is a service that involves managing the investments of clients according to their risk appetite, financial goals, and market conditions. Portfolio managers are professionals who have the expertise and experience to create and execute investment strategies for their clients. Portfolio management can be done through different types of services, such as discretionary or non-discretionary, active or passive, and customised or standardised.

What is the difference between mutual fund and portfolio management?

Mutual funds are one of the most popular forms of portfolio management services in India. They are pooled investment vehicles that collect money from investors and invest it in a diversified portfolio of securities, such as stocks, bonds, money market instruments, etc. Mutual funds offer several benefits to investors, such as professional management, liquidity, diversification, convenience, and affordability.

Portfolio management service (PMS) is a more flexible and customised form of portfolio management than mutual funds. PMS allows investors to have more control over their investments and tailor them according to their specific needs and preferences. PMS also offers higher returns potential than mutual funds by investing in niche or alternative assets that may not be available in mutual funds.

Are PMS risky?

PMS is not risk-free but it involves higher risk than mutual funds because it offers higher returns potential but also higher volatility and uncertainty. PMS requires more research skills and analytical abilities from the portfolio manager than mutual funds because it involves investing in niche or alternative assets that may not be well understood by most investors.

Is PMS better than mutual funds?

PMS may be better than mutual funds if you have:

  • A high net worth
  • A long-term investment horizon
  • A high risk appetite
  • A preference for customised or alternative investments
  • A need for professional guidance

Which is better - AIF or PMS?

Alternative investment funds (AIF) are a type of PMS that invests in unconventional or non-traditional assets, such as private equity, venture capital, hedge funds, real estate, commodities, etc. AIFs aim to generate alpha over the relevant market index by exploiting market inefficiencies or opportunities. AIFs are suitable for high-net-worth investors who have a high risk tolerance and a long-term horizon. There is no conclusive data to say whether AIF is better than PMS. Professional guidance from a financial advisor and careful research can help you decide which direction you wish to move in.