A Portfolio Management Service is a platform created especially for high net-worth individuals to provide customized solutions for their financial investment needs. Investment management solutions in a PMS can be provided in three ways – Discretionary Portfolio, Non-Discretionary Portfolio, Advisory Portfolio. Portfolio Management Services are regulated by Securities and Exchange Board of India (SEBI) under PMS Regulations.
Discretionary: Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager.
Non-Discretionary: Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the Investor. However, the execution of trade is done by the portfolio manager.
Advisory: Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the execution of the investment decisions rest solely with the Investor.
As per regulation, the minimum ticket size applicable at the time of opening a new account is Rs. 50 lakhs. Clients can bring in funds /securities to meet the minimum investment criteria.
The following investors are eligible to invest through PMS:
For investment in listed securities, an investor is required to open a new demat account in his/her own name, because the Portfolio stocks are held in the clients demat account.
'High Water Mark' is the higher of either 'corpus investment value' or 'highest NAV at which fees has been paid historically'. Illustration of how the High-Water Mark would work: A client's initial contribution is Rs 1,00,00,000 which then rises to Rs 1,25,00,000 in its first year. Therefore, a performance fee would be payable on the Rs 25,00,000 return. Next year, the portfolio value drops to Rs 110,00,000. Therefore, no performance fee is payable. In the third year, the portfolio value rises to Rs 1,40,00,000. Performance fee is payable only on the profit which is in excess of the previously achieved high watermark ie of Rs 1,25,00,000 less performance fee (including taxes).
No catch-up means that profit share will be applicable only on the incremental return over and above the hurdle rate. For example, if the value of a portfolio increases from Rs 100 to Rs 120 during a year when the fees structure included a hurdle rate of 8% (i.e. hurdle rate was at Rs 108), then the profit share will be applicable only on Rs (120-108) = Rs 12, rather than it being applicable on the entire Rs 20 profit delivered.
TWRR or Time-Weighted Rate of Return is a measure of the compound growth of an investment irrespective of money flows. In order to calculate TWRR an investor needs to know when investment contributions or withdrawals were made, how much they were, and where the portfolio was valued at the time. Returns must be calculated for each period between contributions or withdrawals and then all the periods are multiplied together to get the compounding effect of the return. If the investment is for more than one year, the geometric mean of the annual returns is taken to find the time-weighted rate of return for the measurement period. Beginning value is the account value at the beginning of a set period. Ending value is the account value at the end of a set period. A simple rate of return is calculated by subtracting the beginning value from the ending value and then dividing by the beginning value.
XIRR or extended internal rate of return is a measure of return which is used when multiple investments have been made at different points of time in a financial instrument. It is a single rate of return when applied to all transactions (investments and redemptions) would give the current rate of return.
TWRR is the methodology prescribed by SEBI and is used by the investment industry to measure the performance of funds investing in publicly traded securities. By contrast, IRR is normally used to gauge the return of funds that invest in illiquid, non-marketable assets-such as buyout, venture or real estate funds.
The Securities Exchange Board of India (SEBI) is the regulatory body for PMS.
Yes, Income from PMS shall be taxable in the same manner as if the investor had dealt with the investments directly. However, the investor is well advised to consult his/her tax advisor for the same.
Discretionary Portfolio Management Services, all control over the portfolio and associated decisions is handed to the portfolio managers. The Investors choose the investment strategy/approach and managers have the liberty to make investment decisions discreetly, without the approval of the investor.
Non-Discretionary Portfolio Management Services on the other hand, require the portfolio managers to provide investment ideas in line with the investor's vision. The investors make the final decisions when choosing from the multiple ideas suggested to them. The Portfolio Manager cannot make any investment decisions of their own accord.
PMS needs to have a portfolio size of Rs.50 lakh (minimum) while an individual can start investing in mutual funds at Rs.500 only.
Mutual funds use pooled accounts for maintaining the securities and funds, whereas a PMS uses a separate Demat account.
The portfolio can be customised as per the investor’s risk profile and financial requirements in PMS while in Mutual fund, portfolio cannot be customised as per the individual needs of an investor.
Some of the key benefits of portfolio management services are listed below:
Transparency: With PMS, investors have easy access to all data related to their investments at any given point. They can keep a consistent track of the portfolio status, holdings, and performance reports. Additionally, access to the portfolio manager builds trust.
Customization: Portfolio Management Services provide tailored solutions to each investor, based on their specific goals and investment preferences. The very first step in the investment portfolio-building process is analyzing the investor's goals. Portfolio managers also study the investor's risk tolerance levels, and investment horizon, along with other factors.
Flexibility: Unlike equity Mutual Fund investment, PMS offers more flexibility. Portfolio Managers can make adjustments to the equity allocation investors to be in sync with the current market conditions and trends.
All clients have an option to invest in the products / investment approaches directly, without intermediation of persons engaged in distribution services.
Potential Clients can directly approach us by sending an email on pms@blue91.in or by contacting us on +91 93541 79604