Portfolio Management Services

Choosing a portfolio management services (PMS) provider is an important decision that requires careful consideration. Here are some factors to consider when choosing a PMS provider:

• Reputation and Track Record: It is important to choose a PMS provider with a good reputation in the market and a proven track record of delivering consistent returns over the long term. You can research the provider’s past performance and read reviews and feedback from existing clients to assess their credibility.
• Investment Philosophy and Strategy: Different PMS providers have different investment philosophies and strategies. You should choose a provider whose investment philosophy and strategy aligns with your investment goals and risk appetite. For example, if you are a conservative investor, you may prefer a provider that follows a value-based investment strategy.
• Fees and Charges: PMS providers charge fees for their services, which can vary depending on the provider and the type of service offered. You should understand the fee structure and the total cost of investing with the provider, including management fees, performance fees, and other charges. It is important to compare the fees of different providers to ensure you are getting a competitive deal.
• Transparency and Communication: A good PMS provider should provide regular updates on the performance of your portfolio and communicate clearly and transparently about their investment decisions. You should choose a provider that keeps you informed and involved in the investment process.
• Regulatory Compliance: PMS providers in India are regulated by the Securities and Exchange Board of India (SEBI). You should choose a provider that is registered with SEBI and compliant with its guidelines and regulations.
• Service Quality: Finally, you should consider the quality of service offered by the provider, including their customer support, investment research, and portfolio management processes. You can assess the service quality by speaking with existing clients or reading online reviews.

In summary, when choosing a PMS provider, it is important to consider their reputation, investment philosophy, fees, transparency, regulatory compliance, and service quality. By doing your due diligence and choosing the right provider, you can maximize your chances of achieving your investment goals.

Investing in a Portfolio Management Services (PMS) in India can offer several benefits to investors, including:

• Professional Management: Portfolio Management Services (PMSs) provide professional management of portfolios with the objective of delivering consistent long-term performance using extensive research and valuation analysis to control the risks.
• No Behavioural flows: Portfolio Management Services (PMS) is not meant for retail investors and follows 50 lacs as min investment ticket, so the portfolio manager gets long term rational flows. Unlike this, mutual funds are prone to behavioral flows, especially with the rising participation of young and retail investors in mutual funds. MFs follow a pooled stock portfolio concept and as retail flows rise with rising markets and fall with falling markets, a mutual fund manager is forced to buy more at higher market levels. Unlike this, in PMS, each investor owns individual shares in his / her personal demat a/c, and hence one investors’ behavioural reactions to market movements doesn’t impact other investors’ portfolios. (With regular flows coming in mutual funds from SIPs, nature of mutual fund portfolio in general is bound to get skewed towards large and giant companies)
• Focussed and Concentrated: In PMS, portfolios are more focussed and concentrated with 15 to 40 holdings, whereas Mutual funds follow too diversified approach because these are products meant for masses. With regular flows coming in mutual funds from SIPs, nature of portfolio in general is bound to get skewed towards large companies and/or more number stocks. Though, this helps mutual funds in reducing volatility to an extent, but more doesn’t always mean low risk; in fact exposure to more companies may increase the risk of buying less known. Also, high diversification beyond a point comes at a cost of limiting potential long term performance, making mutual funds no different than an index.
• Flexibility:  The Portfolio Manager has fair amount of flexibility in terms of holding cash. Theoretically, in case of a PMS, its manager can go up to 100% in cash depending on the market conditions. Also, can create a reasonable concentration in holdings by investing disproportionate amounts in favour of compelling opportunities.
• Transparency: Portfolio Management Services (PMSs) provide comprehensive communications, performance reporting and capital gain statements. Investors get regular statements and updates. Web-enabled access ensures that investor is just a click away from all information relating to investment.

In summary, investing in PMS can offer several benefits to investors, including professional management, customized portfolios, diversification, transparency, and potentially higher returns. However, investors should also be aware of the risks associated with PMS and conduct thorough due diligence before investing.

Like any other investment, portfolio management services (PMS) come with risks that investors should be aware of. Here are some of the risks associated with PMS:

• Market Risk: PMS investments are subject to market risks, which means that the value of the investments can fluctuate based on market conditions. If the market experiences a downturn, the value of the portfolio can decline, leading to losses.
• Concentration Risk: PMS providers may invest a significant portion of the portfolio in a single stock or a few stocks. This concentration risk can increase the volatility of the portfolio and lead to losses if those stocks perform poorly.
• Manager Risk: PMS investments are managed by portfolio managers, and the performance of the portfolio is dependent on the manager’s skill and expertise. If the manager makes poor investment decisions or fails to manage the portfolio effectively, it can result in poor performance and losses.
• Liquidity Risk: Some PMS investments may be illiquid, meaning that it can be difficult to sell them quickly in the market. This can be a problem if the investor needs to sell the investments to meet their financial needs.
• Operational Risk: PMS providers may face operational risks, such as errors in trading, accounting, or reporting, which can lead to losses for the investor.
• Regulatory Risk: PMS providers are regulated by the Securities and Exchange Board of India (SEBI), and changes in the regulatory environment can impact the operations and performance of the PMS provider.

In summary, PMS investments come with risks that investors should be aware of. It is important to understand these risks and consider them when making investment decisions. Investors should also choose a PMS provider that has a proven track record, is transparent about its investment process and fees, and is registered with SEBI.

Portfolio management services (PMS) in India are offered by professional fund managers who manage the investment portfolios of their clients based on their investment objectives, risk appetite, and financial goals. Here is an overview of how PMS works:

• Client Onboarding: The PMS provider will initiate a client onboarding process, which includes a detailed discussion with the client to understand their investment objectives, risk tolerance, and financial goals. The PMS provider will also collect necessary documents and information from the client, such as PAN card, KYC details, and investment declaration form.
• Portfolio Construction: Based on the client’s investment objectives and risk appetite, the PMS provider will construct a customized portfolio that includes a mix of equity, debt, and other asset classes. The portfolio construction process takes into consideration the client’s preferences, investment horizon, and liquidity needs.
• Investment Execution: Once the portfolio is constructed, the PMS provider will execute the investment strategy by buying and selling securities in the market. The PMS provider may use various investment techniques, such as fundamental analysis, technical analysis, and quantitative analysis, to make investment decisions.
• Monitoring and Rebalancing: The PMS provider will monitor the performance of the portfolio on an ongoing basis and make necessary adjustments to maintain the desired asset allocation and risk profile. The provider may rebalance the portfolio periodically to ensure that the asset allocation remains aligned with the client’s investment objectives and risk tolerance.
• Reporting and Communication: The PMS provider will provide regular updates to the client on the performance of their portfolio, including the value of the portfolio, returns generated, and any changes made to the asset allocation or investment strategy. The provider will also communicate with the client on any market events or investment decisions that may impact the portfolio.
• Fees and Charges: PMS providers charge a fee for their services, which typically includes a management fee, performance fee, and other charges. The fee structure and charges may vary depending on the PMS provider and the type of service offered.

In summary, PMS works by offering personalized investment solutions to clients based on their investment objectives and risk tolerance. The PMS provider constructs a customized portfolio, executes the investment strategy, monitors the performance of the portfolio, and communicates with the client on a regular basis. PMS services come with fees and charges that investors should be aware of.

Income from shares purchased through PMS is taxable as Capital Gains. Nature of these gains could be short term or long term depending on the churn in the portfolio. Typically, PMS follows a low churn but it depends upon the portfolio strategy. So, gains from stocks that are held for more than a year get treated as long term and are taxed @ 12.5% plus surcharges. For the holdings that traded within 1 year, treatment is short term, and are taxed @ 20% plus surcharges. For the income earned in form of dividends credited in the financial year, dividend distribution tax is already deducted at the source and in the hands of investor, these dividends tax-free. But, if total income from such dividends earned in a financial year is more than 10 lacs across all investments, then additional dividend income tax is also applicable.

For tax on Category I and II AIFs, these are generally treated as pass-through vehicles, meaning the income is taxed in the hands of the investors and not at the fund level. However, this pass-through status is not available for business income, which is taxed at the maximum marginal rate at the fund level.

Lastly, for Category III AIFs, these funds do not enjoy the pass-through status. Income from these funds is taxed at the fund level before distribution. The rate of taxation depends on the nature of the income – short-term capital gains, long-term capital gains, business income, and so on.