PMS: What are PMS or Portfolio Management Services in India ?

Portfolio Management Services Meaning -Complete Guide 

Portfolio Management Services account is an investment the portfolio managed by a skilled money manager in stocks, debt, and fixed income products that can possibly be tailored to fulfill particular investment goals. When you invest in PMS, unlike a mutual fund investor, who owns units of the entire fund, you own individual bonds. To tailor your portfolio to meet personal preferences and economic objectives, you have the liberty and flexibility. While portfolio directors can supervise hundreds of portfolios,it may be unique to your account. Only those organizations registered with SEBI to provide PMS Services can deliver PMS to customers as per SEBI rules. For the sale of any PMS item, no distinct certification is needed. So this is the situation where there may be mis-spelling. The minimum investment needed to open a PMS account is Rs. 5 Lacs in accordance with the SEBI rules. However, for distinct products, distinct suppliers have distinct minimum equilibrium demands. For Eg Birla, AMC PMS has a minimum quantity requirement for a product of Rs. 25 lakes. Similarly, for their PMS, HSBC AMC has a minimum requirement of 50 lakes and Reliance has a minimum requirement of Rs. 1 Crore.

There are two kinds of PMS in general.

1.Non-Discretionary Portfolio Management Services(PMS): Under this service, only the investment concepts are suggested by the portfolio manager. The selection and timing of investment choices are up to the investor alone. However, the portfolio manager performs trade.

2. Discretionary Portfolio Management Services(PMS).: The discretionary portfolio manager will handle each client's resources separately according to the client's requirements.At the moment of opening his account, the customer may provide an adverse stock list in a discretionary PMS and the Fund Manager would guarantee that those stocks are not purchased in his portfolio. Most PMS suppliers are offering discretionary services in India.

Each PMS  account is unique and each account's valuation and a portfolio may vary. There is no NAV for a PMS system; however, the PMS supplier will provide the client with a daily valuation of their portfolio. Each account with PMS is unique to each other. Each PMS system has a model portfolio and all investments made in the Portfolio Management Services for a specific investor are based on the scheme's model portfolio. These are the following reasons why portfolio may differ from investor to investors :

1. The difference in shareholder amount Redemptions / additional purchase by shareholder market situation–Example If the model portfolio has an investment in Reliance Industries and the present the opinion of the fund manager on RIL is' HOLD' (and not' BUY'), a fresh a shareholder may not have Infosys in its portfolio.

2.Investor entrance at distinct times. The interaction of the fund manager also takes place under PMS systems. The frequency relies on the size of the portfolio of clients and the supplier of portfolio management services. Bigger the portfolio, interaction frequency is higher. The PMS supplier generally arranges communication between fund managers on a quarterly/half-year basis.

How can investors invest in services for portfolio management (PMS)?

In a Portfolio Management Services an investor can invest in two ways:

1.By moving current stocks to the PMS account maintained by the client. The transferred portfolio value should be higher than the minimum investment requirements.

2.Payment by check

Besides this client will need to sign a few records such as –PMS contract with the supplier, Power of Attorney contract, New Demat account opening format (even if the shareholder has a Demat account to open a fresh one) and documents such as PAN, address evidence and evidence of identity are compulsory. NRIs are able to invest in a PMS. To invest in PMS, the NRI must open a PIS account. However, the paperwork needed for an NRI is distinct from an Indian resident. Each PMS supplier provides a document checklist.

Charges of Portfolio Management Services 

The following fees are charged by a PMS. At the moment of the investment, the fees are chosen and vetted by the investor.

1.Entry Load –The entry burden of PMS Systems maybe 3%. It is charged only when purchasing the PMS.

2.Management Charges: Every system for Portfolio Management Services charges the fees for Fund Management. Depending on the PMS supplier, Fund Management Charges may differ from 1% to 3%. It is paid to the PMS account quarterly.

3. Sharing of Profits: Some PMS schemes also have profit-sharing arrangements (in addition to fixed fees), in which the provider charges a certain amount of fees/profit over the fund's stipulated return. For Eg PMS X has 2 percent set charges plus a 20 percent the charge for return charges produced above 15 percent in the year. In this event, if the return produced by the system in the year is 25%, the charges charged by the PMS will be 2%+{ (25%-15%)*20%}. For each Portfolio Management Services supplier and for each plan, the fees charged are distinct. It is recommended that the investor verifies the scheme's fees. In addition to the above fees, the PMS also charges investors on the following fees as all investments are made in the investor's name:

Transaction Brokerage

Demat Account Opening Fees

Audit Fees

Brokerage of Transactions 

How is the Mutual Fund distinct from PMS?

PMS and Mutual are both types of managed funds. The distinction between an investor and a mutual fund in Portfolio Management Services is:

• Portfolio can be customized to meet investor requirements.
• Focused portfolio.
• Taxation difference
•  Investors own the shares directly, rather than the stock-owning fund

PMS(Portfolio Management Services ) Taxation

 Any revenue from the account of Portfolio Management Services is a company revenue. Unlike MF, for the advantage of equity taxation, PMS is not needed to stay 65 percent + invested in equity. Each account for Portfolio Management Services is in the name of an extra investor, so tax therapy is performed at an individual investor level. Profit on the same can be regarded as income from the business. (i.e. slab wise). Profit can be regarded as gains in capital. STCG(15%) or LTCG(Free of Tax)]. It relies on the treatment of this income by customers Chartered Accountant or the evaluating officer. At the end of the FY, the PMS provider sends an audited statement detailing STCG and LTCG, and it is up to the customer and his CA to decide to treat it as a capital gain or business income.

While many PMS suppliers offer standardized portfolios, some give custom-made investments. A customer may want to invest a big quantity, for example, in a single stock. In mutual funds, this is not possible because they can not maintain the net asset value of more than 10 percent in a single stock. While this spreads risk, a major drawback is that even if it is a very good investment, mutual funds can not hold a large interest in a business. This restriction does not exist for PMS.

Categories: PMS, Portfolio Management Services