People need to think about investments so much more these days. Many people want the best investment advice they can get. People can breathe a sigh of relief when pros are in charge of their portfolios. These days, portfolio management services are essential because they help investors make decisions based on the risks in the market. When investors can control the risk in their portfolios, they are pleased. Investors who do not know what to do in this shaky market feel lost. Investment portfolio management helps them make intelligent choices about where to invest.

What are the portfolio management services in India?

Portfolio management services offer customized investment solutions for each investor based on how much risk they are willing to take and how much money they have. This helps investors get the best returns. Choices about solutions depend on whether an investor wants to use debt or equity, how much risk they are willing to take, and, most importantly, how long they are willing to invest.
A Portfolio account is a collection of investments in stocks, debt, and fixed income products that are managed by a professional money manager and can be customized to meet specific investment goals. When you invest in PMS, you own individual securities instead of units of the whole fund, like a mutual fund investor. You have the freedom and flexibility to make your portfolio fit your preferences and financial goals. Even though portfolio managers may be in charge of hundreds of accounts, yours may differ.

Types of Portfolio Management Services

Discretionary portfolio management

Investment decisions are made at the sole discretion of the portfolio manager, and clients do not have much of a say in them.
Non-Discretionary Portfolio Management
With non-discretionary portfolio management services, the portfolio manager suggests investments. However, it is up to the clients to decide whether or not to use these investment ideas. The portfolio manager is in charge of making the trades.
In non-discretionary portfolio management services, the fund manager suggests how to invest and follows the client’s instructions.

How Can Investors Invest In Portfolio Management Services?

A person who wants to put money into Portfolio Management Services can do so in two ways:
1. By paying with a check
2. By moving shares that the customer already owns to the PMS account. The value of the portfolio that is being transferred should be more than the minimum criteria for an investment.
Aside from this, the customer will have to sign a few other documents, such as

  • A portfolio management services agreement with the provider,
  • A Power of Attorney agreement,
  • New Demat account opening format (even if the investor already has a Demat account, he has to open a new one),
  • Mandatory documents such as a PAN card
  • Proof of address,
  • Proof of identity.

The NRI needs to open a PIS account to invest in portfolio management services. The documents that an NRI needs are different from those that an Indian who lives there needs. Each PMS provider gives a list of documents to check off.

Working in a Portfolio Management Services (PMS)

Each portfolio management services account is different, and each account’s value and portfolio may differ from the others. There is no NAV for a PMS scheme. However, the PMS provider will tell the customer daily how much his portfolio is worth. Every PMS account is different from the rest. Every PMS scheme has a model portfolio, and all of an investor’s investments are made in the Portfolio Management Services based on the scheme’s model portfolio. However, the portfolio may be different from one investor to the next.

  • The difference between the investors’ numbers of investments
  • The investor makes repurchases or redemptions.
  • Market scenario: If the model portfolio has an investment in Infosys and the fund manager’s current view on Infosys is “HOLD” (and not “BUY”), a new investor may not have Infosys in his portfolio.

Under portfolio management services schemes, there is also interaction with the fund manager. The number of times depends on how extensive the client’s portfolio is and who they use for portfolio management services. The more often you interact with a portfolio, the bigger it is. The PMS provider usually sets up meetings between fund managers every three or six months.

Portfolio Management Services Charges

A PMS charges the following fees. The fees are set when the money is invested and the investor checks them out.

Entry Load

PMS schemes in India may have a 3 percent entry load. It is only charged when the PMS is bought.

Management Fees

Every Portfolio Management Services plan charges fund management fees. Depending on the PMS provider, fund management charges can range from 1% to 3%. It is taken out of the PMS account every three months.

Taxation for Portfolio Management Services (PMS)

Any money made from the portfolio management services account is money made from the business. Unlike MF, PMS doesn’t have to keep at least 65 percent of its capital in stocks to get the tax benefits of stocks. Each portfolio management services account is in the name of a different investor, so each investor’s taxes are handled separately.
The money made from the same thing can be considered business income. Gain on capital can be regarded as profit. How this income is handled depends on the client’s Chartered Accountant or the assessing officer. At the end of the fiscal year, the PMS provider sends a statement with details about both short-term and long-term capital gains. It is up to the client and his CPA to treat it as a capital gain or business income.

How is PMS different from a Mutual Fund?

Mutual Funds and portfolio management services are both types of managed funds. The difference between a portfolio management service and a mutual fund from the investor’spoint of view is:

  • Portfolio with a Focus.
  • The needs of investors can be met by making changes to a portfolio.
  • Instead of the fund owning the stocks, the investors own them directly.

Portfolio management is about creating investment plans that help investors reach their financial goals based on how long they want to invest and how risky they want to be. Portfolio managers put together custom portfolios that meet their clients’ needs for capital growth, regular income, or cash flow.
Like any other type of investment, portfolio management services come with a level of risk, though it’s indeed much lower than different types. You can read about the risks involved in the terms and conditions of any management service you choose. Before you sign, make sure you’ve read the documents carefully and that you understand every clause.

CA Mukesh Gupta
CA Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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