Portfolio Management Services (PMS)

Like the name suggests a Portfolio Management Service is one that is offered by a portfolio manager who curates a portfolio best suited to one’s needs. The instruments used are all stocks, fixed income, debt, cash, structured products, and other individual securities, and are managed by a professional money manager. 

Unlike a mutual fund, one directly owns the securities of the portfolio rather than units of the fund. It also offers way more flexibility and control than a mutual fund – you are free to choose the securities you want in your portfolio and tailor it according to your needs. 

Portfolio Management Services can be discretionary – where the choice, time, and other factors depend solely on the portfolio manager. They can also be non-discretionary – where the manager puts in his suggestions, but the final call rests with the investor. Note here that the trade is executed by the portfolio manager. The third kind is the advisory kind – this type of manager only advises, the decision and execution both lie with the investor. 

Owing to the personalized nature of the service, Portfolio Management Services only cater to high net worth individuals and even more preferably those who are looking for a longer-term for wealth creation. 

A Portfolio Management Service has several advantages. First is the very nature of the service in terms of the professional advice and suggestions available. A portfolio manager is usually one with lots of experience and can take decisions according to varied market conditions. Second is the continuous monitoring that they provide. There is also an element of transparency and flexibility. 

To enter and avail a portfolio management service, one needs to complete the registration process. This includes opening both a new bank account as well as a Demat account. . A Demat or dematerialized account is a digital account that holds all the securities that you own and trade. All investments are made in your legal name, including shares held and traded in your Demat account.

This new bank account that you have opened will be credited with all gains – capital as well as dividends. Along with this, you are required to hand over power of attorney for both the bank as well as the Demat account to your portfolio manager. This enables them to operate on your behalf and execute their strategies. However, you as an investor will have full access to these accounts and can regularly check them for updates. 

Given the uncertain nature of these portfolios and the element of personalization which makes it slightly costly, the small-scale investors are usually not the target customers. As per SEBI norms, a PMS account can be opened and held, with a minimum corpus of Rs. 50 lakhs. (i.e the minimum ticket size) Until 2019, this amount was restricted to Rs. 25 lakhs. However, different financial service providers have varying balance requirements for the financial products offered by them.

To open a PMS account as an individual, you would be required to submit the following documents:

1. PAN card
2. Photographs
3. Address proof – Aadhar card
4. PAN and Aadhar card copy of Guardian – If Nominee is minor
5. Second Holder – PAN and Aadhar card copy
6. Bank proof – Any one of the following

• Pre-printed canceled cheque in the name of the Account Holder
• If cheque not preprinted then – Bank statement / Passbook required
• In case a canceled cheque is given in the name of a proprietary firm then a bank letter along with a bank stamp is mandatory.

6.FATCA Declaration

7. Copy of the POA provided to the PMS

8. Demat account opening form

9. Term sheet

The portfolio manager must have a minimum net worth of Rs. 5 crores to be eligible. 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 is applicable after three years.

These efforts have been made by the SEBI to bring the portfolio management services vertical in line with the mutual fund business, especially in terms of investor – friendliness. 

The Portfolio Management Space is filled with both big and small players. One of the top players is ASK Investment Managers which has one of the highest AUMs among all. (which comes as a surprise considering the industry has some traditional heavyweights like Motilal Oswal PMS and Enam Asset Management.)

Other top players include Alchemy Capital Management, Unifi Capital, IIFL Wealth Advisors, ICICI Prudential Asset Management, Banyan Tree Advisors, and Karma Capital Advisors.  

Among the top ten players in this industry, only two also have a mutual funds business – Motilal Oswal AMC and ICICI Prudential AMC – which shows the vast difference between the two. 

The total industry is said to have about 300 managers, managing over Rs. 13.82 lakh crore. Of this total around Rs 1.13 lakh crore has been invested in inequities. 

In conclusion, a portfolio management service is not available to small retail investors. But for High Net worth individuals, the pros definitely outweigh the cons!