Have Rs 25 lakh to invest, try portfolio management services

Portfolio management services (PMS) have evolved to become one of the top investment vehicles in Indian capital markets in the last 13 years. Several domestic and foreign players are present in this space which continues to grow rapidly. As per Securities Board of India (Sebi), the assets under management of discretionary portfolio management service have doubled in the last one year to Rs 40,000 crore, and continues to grow at a fast clip.

So why is the product is gaining popularity? Let's first understand what PMS is all about. PMS is a tailor-made professional service offered to cater to the investments objective of different investor classes. The investment solutions provided by PMS cater to a niche segment of clients. The clients can be individuals or institutional entities with high networth. Simply put, a portfolio management service provides professional management of client's investments to create wealth. The service providers offer various thematic strategies themes ranging from large cap, small & mid cap, flexi cap, focused products etc to suit the specific needs of the investors.

Once the investor has chosen the investment strategy based on his risk-return profile, strategy features and other details, PMS investor and the portfolio manager enter into an agreement. The agreement list down the roles and responsibilities of the portfolio manager and is legally binding for both the parties.

The portfolio manager than creates the portfolio of stocks (or fixed income instruments/debentures) for the investor. The minimum investment amount is Rs 25 lakh which can be paid in either cheque/bank transfer or stocks worth this much. The portfolio of stocks bought for the investor are then housed in a demat account opened in the investor's name only, and can be transferred back to him in case he decides to close his PMS account. This is one of the main differentiating features between a PMS and mutual fund where an investor exiting will see his MF units being liquidated and he would only receive the monetary value of those liquidation proceeds. Also, PMS as a platform can be used to implement more flexible, concentrated and customised strategies, unlike MFs where there are clear guidelines from the regulator. While there is a limit on exposure to individual stocks in a mutual fund, a PMS portfolio can make a far more aggressive allocation to any particular stock if he so decides. For example, it is possible to construct a portfolio of 5-10 stocks on a PMS platform, but not under MF platform.

Most PMS service providers use technology to provide a very transparent view of the existing client portfolio by providing a web page with login details for every client. This way the client can access and review his portfolio on 24x7 basis. Equity enthusiasts appreciate the fact that they have access to full portfolio at all times and can question the portfolio manager on stock rationale and investment process.

An investor normally gets a choice to decide how he will like to pay his portfolio manager. He can decide to either pay a fixed management fee or have a performance linked fee structure where he pays as a percentage of the returns generated in the portfolio. Since, all stocks are held in the name of the client, tax treatment is similar to an individual equity portfolio.

A good portfolio manager will identify good long-term wealth creating investment ideas for the investor. Also, a professional portfolio manager will be able to take dispassionate calls about each stock in the portfolio and enter and exit stocks at the right time, which most investors find difficult to do on their own.

Thus PMS provides a hassle-free, transparent and customised platform for investor participation in equity markets. For those investors who are actively tracking the markets and like to understand how their money is being managed, PMS offers a great platform.

The writer is vice-president & fund manager, PMS, Motilal Oswal Asset Management Company