PMS Details

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Portfolio Management Services is popularly known as PMS. Some of you might be confused about various aspects of PMS. Thus, we present to you PMS Details.

Using the frequent questions we come across, we’ll attempt to clear your queries regarding Portfolio Management Services.

Read along to learn about PMS details.

  1. What is a portfolio?

A collection of financial investments like equitycommoditiescurrencyderivatives, bonds, ETFs (Exchange Traded Funds), etc. is known as Portfolio.

It is a general notion that a portfolio comprises only financial segments. But that is not the case. The Portfolio consists of a wide range of assets like real estate, art, private investments, and financial investments.

The portfolio holder takes a call to manage the Portfolio himself or hand it over to a fund manager. The decision to hand over the Portfolio to a portfolio/fund manager builds the Portfolio Management Industry.

It was unregulated before 1993, but SEBI introduced regulations to safeguard the interests of Managers and Clients.


         2. What PMS means?

PMS, in the Indian Stock Market, means Portfolio Management Services. The PMS industry has been around for almost three decades after the regulations were announced. But it was operational in India for years before it got regulated.

Portfolio Management Services is an industry that got regulated by the introduction of Securities and Exchanges of India Portfolio Managers Regulations, 1983.

regThese regulations were meant to safeguard the small investors.

The minimum criteria were also formulated for becoming a portfolio manager – requirements such as minimum net worth, educational background, working experience, etc.


        3. What are the Portfolio Management Services?

When a high net worth individual or an institution is short of time or knowledge about trading, they turn to portfolio managers.

These managers are experts in the field of analyzing and researching the stock market trends.

A company hires the managers for managing funds or portfolios, either stockbrokers or Asset Management Companies (AMCs). These companies are licensed and registered with SEBI.

They study the market concerning your goals and requirements and then suggest the best options to achieve your goals.

They charge a fee for doing so. These charges are discussed before the agreement is signed.

The service extended by the fund or portfolio managers is known as Portfolio Management Services.

The industry of PMS has been growing since inception due to the easing facility for an investor.


       4. What is the PMS account?

Just as trading in the stock market necessitates having a Demat account, availing the service of Portfolio Management, the investor has to have a dedicated Demat account.

A Demat account opened for the sole purpose of PMS is popularly known as a PMS account. This account is owned by the investor but is managed by the fund or portfolio manager.

This division gives the investor the trust that the ownership lies with him but saves his time and efforts from managing his financial assets.

Generally, if the service provider is a stockbroker, they ask the investor to open a Demat account. If it is an AMC, they have different requirements, which vary from company to company.


       5. How does PMS work in India?

Portfolio Management Services is an industry that is based on financial portfolios. In India, the industry extends two PMS types to ensure clients’ requirements and goals are met in the most desired way.

The two types of PMS are – Discretionary Portfolio Management and Non-Discretionary Portfolio Management.

Discretionary Portfolio Management gives the power of making decisions on behalf of the investor to the portfolio manager. This discretion allows for swift trading and increases profits.

Non-Discretionary Portfolio Management is like having a financial advisor. The manager makes a list of suggestions and options for the client. The investor has complete discretion in choosing the financial segment, company, or commodity to invest his money.

The more popular from the two is Discretionary as most investors lack the time required to observe the market trends. Understanding PMS Details is vital to select a suitable type of PMS.


        6. How to start Portfolio Management Services in India?

According to Portfolio Management Services Regulations SEBI 1993, registration at the regulatory body is mandatory. Some basic requirements are to be fulfilled to get registered. They are:

  • The registering body should be a corporate entity.
  • The body should have a minimum net worth of ₹5 crores.
  • The company should have a dedicated office space and relevant pieces of equipment.
  • The office should have a sufficient workforce. SEBI mandates a minimum of two portfolio managers.
  • The appointment of a compliance officer is necessary.
  • The principal officer should be well qualified to head a company in this industry.
  • The license should be valid, which is issued for three years by SEBI.
  • The applicant should be a fit and proper person.

After the applicant meets these criteria, the application is considered by the regulating body – SEBI. They may or may not accept your registration request.


       7. How do Portfolio Management Services work?

The Portfolio Management Services industry is pretty straightforward working. An investor decides to hand over his capital to a portfolio manager to invest in the market.

He chooses the company that suits his investment goals and completes the necessary paperwork along with the agreement.

The capital is then handed to the portfolio manager, and he begins the research for building a diversified and secure portfolio.

The capital gets divided into various financial segments, and the investment is made to reduce the risk involved. A more diversified portfolio is said to have a lesser chance of losing the capital in its entirety.

Based on the type of PMS chosen by the client, the decisions of selling, holding, or buying various financial segments are made. These small decisions combine to make Portfolio Management Services work.


      8. Why Portfolio Management Services?

The answer to this question is straightforward. An investor chooses to hire a portfolio manager or fund manager to save his time and effort on learning about the stock market. 

Since an expert takes control of the Portfolio, you can focus on other aspects of life while your investments are sowing seeds to reap you good returns.

PMS is chosen by investors who don’t have the knowledge to invest in markets wisely. It is no secret that if we invest in the Indian stock market without proper calculations, it will be similar to burning your hard-earned money.

Thus, to execute calculated transactions, the investor gives away his money to a Portfolio Manager.


       9. Is Portfolio Management Services good?

We want to answer this question in one word – Depends.

You’d ask what?

It depends on your experience.

Some people might receive great returns at the end, while others might end up receiving the capital back or, in the worst case, lose their money.

Now, for the first investor, the PMS is a great way to multiply your investments. But, for the other two, it is not a recommended choice.

That’s why, before you sign the agreement, you should know about the firm in detail and study their return performances of previous years to get a brief idea of their strategies and working styles.

      10. What does the Portfolio Management Service involve?

Portfolio Management Services involve various research stages, in-depth analysis, regular observation of the stock market, exploring the best options for investing less and receiving higher returns.

A portfolio is a diversified collection of various financial segments. One invests in these segments after a detailed analysis to maximize the returns after a long term investment. 

It also includes increasing tax efficiency and tactical asset allocation strategy. A dynamic approach helps you to benefit from unexpected market movements.

The manager is expected to reduce the risk involved in investing with the share market and work to increase the profit margin.

       11. How many Portfolio Management Services in India?

Portfolio Management Services is extended by many stockbrokers and Asset Management Companies (AMCs). These corporate bodies are required to be registered with SEBI to be able to provide this service.

The SEBI registration has some prerequisites to be fulfilled. SEBI has listed the registered companies on the official website.

The total number of registered Portfolio Management Services companies is 365.

Since the list is available in the public domain, cross-check before signing the agreement with any broker. This small step can ensure a secure investment of your capital.

       12. Who can provide Portfolio Management Services?

With increasing fraudulent activities in the Portfolio Management Services industry, it was necessary to introduce regulations for both the essential players – investors and managers. The managers have to meet the criteria of having a license and maintaining a minimum net worth.

The investors have to invest a minimum investment in PMS is the amount of ₹50 lakh.

This specification made the market limited to a few players. Thus, stockbrokers and Asset Management Companies (AMCs) having net worth more than ₹5 crores can register at SEBI to extend the PMS facility.

The company may not be a stockbroker or AMC but has to be a corporate entity with a minimum net worth of ₹5 crores to be eligible for registration as Portfolio Manager.

        13. What is Discretionary Portfolio Management Services?

There are four PMS types. They are

  • Passive Portfolio Management
  • Active Portfolio Management
  • Non-Discretionary Portfolio Management
  • Discretionary Portfolio Management

Since the question is about Discretionary Portfolio Management Services, the answer will be restricted to that only.

Discretionary Portfolio Management Service, as the name suggests, is the type of PMS where the fund manager has the discretion to make decisions of investing on behalf of the investor.

The client is not asked about the investment decisions but only informed via the performance report.

The client gives the fund manager a free hand to transact in whatever financial segment and take the call to buy, sell, or hold these segments. Thus, no approval from the client is required.

The client has to have 100% faith in the fund/portfolio manager to handover the power of attorney of his financial investments to a third person.

As an investor, you should be no stranger to the PMS details to make the correct decision.


       14. Which PMS is best in India?

This question has a significant share in the PMS Details article.

Choosing the best PMS in India for you is difficult, as you may or may not inspect a company on the same grounds as us. The criteria we use to rank the best PMS services in India are

  • Performance
  • Customer Support
  • Investment Strategies
  • Initial Fee
  • Commission Model
  • Portfolio Manager Background
  • Portfolio Disclosure
  • Number of Clients
  • Goodwill of the Company

From the 365 SEBI registered portfolio managers, we have ranked the top 10 PMS Companies. Based on these criteria, the list is as follows:

Although we have provided you with a list of PMS companies, shortlist, and select the firm that suits your life and investment goals the best.


          15. How many types of Portfolio Management?

There are four types of PMS available to investors. They are

  • Discretionary Portfolio Management – The fund or portfolio manager has complete discretion to buy, sell, or hold the financial investments to increase the profit margin and reduce the losses.
  • Non-Discretionary Portfolio Management – The fund or portfolio manager is like a financial advisor.

They study the market and provide the client with suitable suggestions. It is up to the client to invest or not.

  • Active Portfolio Management – The strategy of investment in this type is to take swift calls on the market’s sudden movements.

The risk involved is higher, but the chances of making more profit are equally more.

  • Passive Portfolio Management – The fund or portfolio manager tries to imitate the market indices to minimize the risk.

The manager diversifies the Portfolio by investing in small, mid, and large-cap companies. This division distributes the risk and increases the safety of capital.


        16. What are the benefits of a managed Portfolio?

The benefits of a managed portfolio are as follows

  • Track Performance – The performance can be tracked regularly with no stress of changing your strategy or plans.
  • Customization – The Portfolio can be customized based on your requirements and necessities. No portfolio manager dictates which type of portfolio management service you should choose.

It can be suggested by him to help you make the best decision. In many cases, portfolios are built according to your investment goals.

  • Time-Saving – When you can have someone to manage your Portfolio for you, why would you want to spend time learning about the stock market? Hire a portfolio manager and get the best advice from the experts.
  • Cost Savings – The cost in comparison to the investment and profit is significantly less. It may be high in some cases, but you’ll generally receive more than what you pay. These returns increase the satisfaction level.

These simple PMS details will guide you to choose or reject the facility of portfolio management services.


        17. What are the key elements of portfolio management?

There are four key elements of portfolio management services. They are listed below:

  • Effective Diversification – A more diversified portfolio has lesser chances of losing the capital invested. A portfolio with multiple financial assets can increase the possibilities of high profits too.

The diversified Portfolio helps distribute your risk appetite too.

  • Active Management – An actively managed portfolio is more profitable as the manager plays on the minutest fluctuations of the market. 

A manager following an active strategy will probably give higher profits to his client than a manager who follows a passive strategy.

  • Tax Efficiency – The manager also has to decrease the taxable profit margin. This aim can be achieved by investing in financial segments that have lower tax rates.

Tax rates combined with the best return segments would certainly rejoice the client at the end of the agreement.

  • Cost Efficiency – Paying a fee for the investment you make is inevitable. So, thinking of getting a great value in exchange for these charges is not wrong. Choose a fund manager who aims to maximize your benefit and not his.

Conclusion

Learning about PMS details has been a long journey. This article has been concluded in the following paragraphs.

PMS or Portfolio Management Services is a growing industry in India that extends the facility of managing your financial portfolios to reduce the risk of losing the invested capital and maximizing the profit margin.

There are four types of PMS – Active, Passive, Discretionary, and Non-Discretionary. Each one of them has a unique feature that differentiates it from the others.

There are 365 SEBI registered Portfolio Managers. The list is easily accessible from the official website.

The regulations for this industry were introduced in 1993 – SEBI Portfolio Managers Regulations, 1993. These were important to reduce any ill practices and safeguard small investors and portfolio managers’ interests.

An agreement is signed by both parties to avoid any confusion or misconceptions.

We hope you understood the PMS details, and it cleared your doubts.

Thank you!


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