PMS Investment Risk

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The PMS investment risk is dependent on a lot of factors, but before we discuss these aspects, we much know about Portfolio Management Services (PMS) in brief.

To begin with, let’s know a little about the meaning of PMS. PMS is a service extended by a SEBI registered PMS companies that appoints fund managers to help High Networth Individuals (HNIs) create and manage their investment portfolio.

An investor should learn about PMS details like PMS features, PMS minimum investment, PMS charges, PMS returns, and how important is Portfolio Management. These aspects help the investor to take a call on whether he must create a portfolio or not.

Further, it has to follow the Portfolio Management Services SEBI regulations as the PMS industry is SEBI regulated. PMS is a personal finance service wherein there are two types of PMS – Non-Discretionary and Discretionary.

In Non-Discretionary PMS, the fund manager gets the client’s approval before executing any trade or transaction. He researches the various options available and suggests them to the client.

In Discretionary PMS, the fund manager has the option to execute trades at his discretion. No client approval is required to take a call on investment decisions.

Coming back to the topic, the PMS investment risk is dependent on multiple factors. So, let’s discuss them in detail.

Risk in PMS Investment

The various factors responsible for PMS investment risk are dependent on the investment strategy chosen, the risk-taking ability, transparency, etc. Since investing in portfolio management is a risky affair, SEBI has set the minimum investment amount at ₹50 lakhs.

Below is a list of the significant factors:

  • Portfolio Investment Strategy

Choosing the correct strategy for investing and building a portfolio is essential. The strategy has to be in line with your financial goals and requirements. You would not want to invest in a situation with a plan but not achieving it at all.

So, before you select an investment strategy, plan your goals, and work accordingly.

  • Portfolio Risk and Concentration

The risk in PMS investment depends heavily on the concentration of the funds and the risk involved in that particular investment instrument.

PMS generally has a concentrated portfolio like 20-25 stocks and a few bonds. The more concentrated the portfolio, the riskier it becomes but can be equally profitable.

  • Disclosures and Transparency

The transparency in PMS is significantly less as compared to other similar services. The disclosures are mandated in other investments, but the funds have very few requirements to fulfill in PMS.

These schemes and strategies might offer many attractive returns, but only a well off individual can bear the risk. This reason is one of many as to why a minimum amount of investment has been set.


Conclusion

Several aspects influence PMS investment risk. Since the risk is uncertain, the minimum investment amount is set at a higher number to reduce the risk for a small scale investor.

PMS is a facility extended by companies that are registered with SEBI. They build diversified portfolios intending to reduce risk and maximize profits. But the profits can never be ascertained.

Thus, no matter how planned the portfolio is, PMS investment risk is always looming over the investor’s head.

Happy investing!

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