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Are you a high networth individual with an investible surplus of above Rs 50 lakh? Do you find it increasingly difficult to keep a track on investments or confused as to which way the market (stocks and bonds) will move?
Alternatively, do you fail to devote sufficient time in reshuffling your investments in line with the changing dynamics or hold many dormant stocks and find it difficult to take a call on these stocks now?
Then the best solution is to avail of portfolio management service. Portfolio management advisors not only help you protect your investments, but also help generate higher returns.
Of course, a lot depends on your risk profile. The PMS sector has been booming over the last three years on excellent returns generated by portfolio managers even in a dull market.
Why PMS?
It is a known fact that managing investments these days, whether it be stocks or bonds, has become very complex and requires full-time attention.
Moreover, modern financial markets are characterised by increased volatility and strong global linkages.
This, in turn, results in constantly changing risk-reward relationships. Professional investment managers are better placed to steer through these complex, volatile and dynamic times.
Advantage of PMS over MFs
PMS is a better product compared to mutual funds. According to Sharad Shukla, head of investment advisory service at IL&FS Investsmart, "Mutual funds are mass products addressing the needs of large investors. While PMS is a more specialised product understanding the needs of the investor."
Another big disadvantage of a mutual fund is that there is a big entry or exit load.
Moreover, even if you do not like a particular sector in the portfolio, you have to continue to remain invested.
In a PMS, the fund manager will create a tailor-made portfolio or construct a portfolio taking your risk profile into account.
Adds Shahzad Madon, vice-president at Prudential ICICI AMC," Everything potentially which is not a mutual fund is seen as a PMS."
However, the biggest disadvantage a PMS has over a mutual fund is that investment in MFs enjoys tax benefits. In addition, under PMS an individual has to plan his tax liability.
Who offers PMS?
Mid-size brokerage houses, institutional brokerage houses, and mutual funds offer PMS. ICICI Prudential AMC, IL&FS Investsmart, Motilal Oswal Securities, Enam Securities, Kotak Mahindra Securities and DSP Merrill Lynch are among the prominent players.
Besides these, there are a number of mid- and small-sized brokerage houses, which offer PMS.Big institutional brokerages or AMCs offer advisory services with a minimum corpus of Rs 50 lakh (Rs 5 million) to Rs 1 crore (Rs 10 million), while IL&FS Investsmart is targeting investors with funds of Rs 5 lakh.
Investors could also lend their stocks for the PMS instead of cash. The advantage of going to an AMC or institutional brokerage house is that they are more transparent in dealings as they issue account statements on a daily basis. In fact, Pru ICICI AMC has a personalised portal to check one's account online.
Tailor-made products
PMS products have been introduced to meet each individual's risk-return profile. In addition, individuals have a say in the investment. Apart from this, they have the choice to pick up tailor-made products.
For instance, Pru ICICI has introduced a dividend yield portfolio and asset shield. Motilal Oswal Securities has introduced PMS based on technical charts.
Fee structure
The client has the option to go in for a flat fee structure or profit sharing. The flat fee structure varies between 2.50 per cent and 3.00 per cent of the corpus amount.
Meanwhile, under profit sharing, the ratio varies between 90:10 or 80:20. Besides, the fee structure, individuals also have to pay brokerage and demat charges.
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