Portfolio Management Vs Portfolio Management Services

What is Portfolio Management?

Portfolio Management means allocating funds to various asset classes & portfolio management services means managing investors portfolio. Read in detail the difference at Karvy Online.

Factors that determine one's investment objective:

Investment decision is something that is linked with risk appetite of an individual and risk varies from person to person, place to place and situation to situation. Hence, it is not applicable universally and is mostly specific to an individual.

However, there are factors which help determine investment objective of an individual such as:

• Requirement
• Risk appetite which relates to risk tolerance
• Current and future earnings
• Current and future expenditures
• Time horizon of investment

Portfolio Management Services (PMS) in India:

Portfolio management services means managing investor’s portfolio in Stocks, Debt and Fixed Income products by professional money managers. When one invests in PMS, he/she owns individual securities. He/she has the freedom and flexibility to tailor his/her portfolio according to personal preferences/goals.

As per the guidelines of SEBI, only those entities who are registered with SEBI for providing PMS services can offer PMS to clients. The minimum investment required to open a PMS account is Rs.25 lakhs.

PMS is broadly categorized into two categories. They are:

• 1. Discretionary PMS – Under this service, investment is at discretion of the fund manager and client has no interference in the investment process.
• 2. Non-Discretionary PMS – Under this service, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest with the investor. However, the execution of the trade is done by the portfolio manager.

  Methodologies of investing in Portfolio Management Services (PMS):

  There are two ways in which an investor can invest in PMS:

  • Through Cheque Payment
  • Through transferring existing shares held by the customer to the PMS account. In addition to this, the customer needs to provide few documents like, PMS agreement form, PoA agreement, new demat account (even if investor has a demat account , he/she is required to open new one) and copies of documents like, PAN, address proof and identity proof. Under PMS schemes, the fund manager interactions with client also take place. The frequency depends on the size of portfolio investment. The bigger the portfolio, frequency of interactions is more.

PMS Charges: A PMS charges following fees which vary from one service provider to another.

Entry Load: PMS may have entry load charges about 3%. It is charged at the time of buying the PMS.

Management Charges: Every PMS scheme charges fund management fee which may vary from 1% to 3%.

Profit Sharing: Some PMS schemes also have profit sharing arrangements wherein the service provider charges a certain amount of profit over the stipulated return generated.