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Home Investment How to evaluate Portfolio Management Service (PMS)?

How to evaluate Portfolio Management Service (PMS)?

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Portfolio Management Service is investment service offered to the High Networth Individuals (HNIs) by professional money managers.

The chance of losing money in the stock market is very high for the beginner or DIY (do it yourself) investors. To avoid this situation you can take assistance from an expert fund manager by opting for PMS. If you opt for these services, your entire portfolio will be controlled and managed by PMS. They will take the entire headache of portfolio management and financial goals. You need not to do anything. All buying, selling decision will be taken by them. You will be able to access your portfolio anytime.  The arrangement of PMS helps investors to reduce risk & maximize returns. 

In this article, you will learn

What is PMS?

PMS stands for Portfolio Management Services. A PMS is offered by almost every stock broking companies. Money manager of PMS are experts in the stock market and they offer following services to the client.

  • They take entire responsibility of managing your portfolio.
  • They understand your financial goal and what type of return you expect from the investment. They make investment portfolio accordingly.
  • They track the market and invest money on your behalf for wealth generation.
  • They also advise you on other financial instruments and your investment strategy. 

Also Read – 10 Best Mutual Fund Mobile Apps for Investment & Portfolio Tracking

Features of PMS 

  1. PMS deals in both equity as well as debts.
  2. PMS services are offered by brokers, banks, independent investment manager and AMC.
  3. PMS is registered on SEBI.
  4. The minimum investment required for these services is 5 Lakh. however, the minimum investment required is varied for different service providers.
  5. The services offered here are chargeable and it is a percentage of portfolio size.
  6. Different model portfolios are provided in this service. Investors can choose it as per financial goals and requirements.

Types of Portfolio Management Services

There are two types of portfolio management services available in the market.

(1)   Discretionary PMS

Discretionary Portfolio management means a service provider can take buy or sell investment decision on the client behalf. They are not bounded to consult the client while making a transaction. Investment decisions are made at portfolio manager discretion.

(2)   Non-Discretionary PMS

Non-Discretionary Portfolio management is opposit of discretionary. Here service provider needs to consult the client before making any transaction. The decision making power for transaction lies with the client only. Portfolio manager only assists the client in taking the right decision. 

Who can invest in a PMS?

Anyone can avail services of PMS. However, it is more suitable for the following types of investors.

  • High net worth investors ready for taking a risk.
  • An investor seeking a customized investment solution.
  • A newbie investor who wants to maximize gain and reduce risk.
  • An investor seeking long term wealth generation & who understand the risk associated with these type of services. 

How to evaluate Portfolio Management Services (PMS)?

You may come across many PMS providers in India. Following factors will help you in evaluating and zeroing down Best Portfolio Management service provider in India.

(1) Experience & Performance History

The first thing you need to check is the skill & experience of manager managing services. The manager should be competent and aware of the market scenario.

It also becomes crucial to look at the stock selection and portfolio management strategy. You should check past performance history and client reference before opting for any services.

(2) Lock-in Period

Lock-in period is another factor of evaluation. Lock-in period is a time during which you will not be allowed to quit from this services. As per regulation, there is no lock-in period but few companies keep conditions for Lock-in period. One should avoid the companies offering services with Lock-in period.

(3) Fee Structure

The fee structure of PMS is another important factor for the consideration. The fee structure of every PMS is different. Some of them charge a fixed fee based on the portfolio valuation while other charges variable fee.

A variable fee is made up of two components (1) Flat fixed fee (slightly lower) (2) Profit-sharing component.

You can select a fee structure based on your convenience. However, make sure that you understand fee structure completely before opting for services.

(4) Brokerage and Other Charges

Brokerage charges are applicable at every buy and sell activity. These charges are on the top of a fixed fee structure. This means if buy-sell activities are more you need to bear additional expenses for the brokerage charges. So, it is a good idea to look at the turnover ratio before making a selection of the PMS.

(5) Investment Strategy

You should look at the investment strategy adopted by the manager before availing services. A fund manager should make use of various asset class while making your portfolio. The fund manager should not give higher exposure to the equities. Higher exposure to equities will increase risk.

(6) Customer Base

Another important factor you should look at is the existing customer base of the company offering the services. You can get this information from the company website or from various other resources. If total client count is high, the fund manager may not be able to do justice with the services offered to you.

(7) Entry & Exit Load

Entry load is imposed when you enter into services whereas exit load is applicable when you exit from the services. Most of the PMS either charge entry load or exit load. You should select the services where the entry load and exit load are minimum.

Best Portfolio Management Service in India 2019

#1 Porinju Veliyath’s Equity Intelligence

Porinju Veliyath Equity Intelligence is among one of the Best Portfolio Management Services in India. This PMS offers only discretionary services. It means the decision to buy and sell stocks will be taken by the fund manager on its own.

The minimum investment required for joining equity intelligence is 50 Lakh. The services offered here is without lock-in. You can withdraw your investment anytime. The past performance history of Equity Intelligence is excellent. NRI can also invest in this PMS.

Fees of Equity Intelligence

  • Equity Intelligence of Porinju Veliyath charges a fixed management fee of 2% of quaterly Average Balance.
  • Additional performance fee 10% share of the returns above 10% per annum.
  • Brokerage charges are extra

#2 Motilal Oswal PMS

Motilal Oswal is second in the list of best portfolio management services. Motilal Oswal also offers discretionary portfolio management services. The minimum investment required for joining Motilal Oswal PMS is 25 Lakh. They offer three different products –

  • Value Strategy – The investment style of this product is buying undervalued stocks & selling overvalued stocks, irrespective of index movements.
  • Next Trillion-Dollar Opportunity – This product aims to deliver superior returns by investing in focus themes which are part of trillion-dollar GDP growth opportunity.
  • India Opportunities Portfolio Strategy – The IOP invest in companies which are expected to grow with India and meet the unique investment philosophy of Motilal Oswal.

Fees of Motilal Oswal PMS

  • The fixed management fee is 2.25-2.5% based on the portfolio value.
  • The variable fee structure is 0.75% to 1% on the profit.
  • Brokerage charges are extra.

#3 Kotak PMS

Kotak PMS is the next popular PMS in India. The minimum investment required to join this PMS is 25 Lakh. No Lock-in period applicable to this portfolio management service. You can withdraw your money anytime. They offer two products.

  • Special Situation Value Strategy – In this product investment is done in undervalued stocks associated with special situation benefits such as a merger, acquisition, restructuring, etc.
  • Small & Mid Cap Strategy – Here 75% of the portfolio is made up of small & mid-cap stocks. The stock-specific approach is employed with a medium to long term perspective.

Fees of Kotak PMS

  • A fixed management fee is 2.5% per annum payable quarterly.
  • No Performance fee.
  • Exit load 1% if you exit before 1 year.

Note – I have not invested in any of the PMS services mentioned above. The review given above is based on customer feedback and information available on the internet.

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