
MUMBAI: Aashish Somaiyaa, a mutual fund industry veteran, now says portfolio management services (PMSes) are a far superior investment platform than mutual funds.
Somaiyaa, who spent decades in the mutual fund industry in leadership roles with some of the country’s top fund houses, quit as the CEO & Managing Director of Motilal Oswal Mutual Fund earlier this year.
Since, he has taken up the mantle of CEO at White Oak Capital, a Mumbai-based boutique investment management and investment advisory firm founded by another mutual fund industry veteran Prashant Khemka, former CIO and lead portfolio manager for India equity and global emerging markets equity at Goldman Sachs Asset Management.
“PMS is proving to be a better investment option compared with mutual funds and can deliver superior returns over the long term,” Somaiyaa said.
PMSes offer customised investment portfolios in equity or debt asset classes, wherein a power of attorney is executed by the investor in favour of the fund manager to operate the person’s demat account.
While PMSes and mutual funds are both professionally managed, in the case of the former, the investor owns the underlying asset, unlike in the latter, where they own units representing the stock.
PMSes require a minimum investment of Rs 50 lakh, while in the case of mutual funds, one can invest as little as Rs 500.
“PMSes and AIFs are proving to be a better platform, because of unfettered mandates, performance potential, pricing options , latitude in managing money and better engagement,” Somaiyaa said at PMSBazaar’s PMS & AIF Summit 3.0 on Friday.
He said mutual funds are getting straight-jacketed, with issues such as defined investment universe and individual stock exposure limits, while PMS and AIF offer the flexibility desired to optimise returns.
“First, we have a pre-dictated investment universe – largecap is just top 100 stocks, midcap is the next 150,” he said. “When fund sizes are to the tune of Rs 20-30-40,000 crore, and what is largecap and what is midcap is dictated, it obviously puts a cap on the latitude available to manage these funds,” he said.
He said as a product PMS is far more transparent, and that is where the problem lies, as people tend to get overwhelmed with the ‘availability bias’ as each and every cost is disclosed here.
In a PMS, investors’ portfolios reside in their demat accounts and they can see every trade, price of execution, brokerage, STT, along with details of every expense incurred to manage the portfolio. Mutual funds, too, incur these costs and pay those levies, but they are managed like a generic pool, and everything reflects in one just metric, which is the net asset value (NAV) .
He likened investing in a PMS to ordering from an ‘open kitchen’ wherein the customer can clearly see how the food he ordered was cooked and brought to the table. “When you can see every step the chef takes, you will always have a lot of commentary,” he said.
He went on to compare it with undergoing a surgery without the help of anesthesia. “Imagine you are on the operation table, and while you are being operated, the doctor suddenly says, ‘Oh my God!, that is the wrong place!’ what will be your reaction? You would want to jump off the table and run away,” he said.
“In PMS, there is absolute transparency, and that definitely causes a lot of stress. Too much transparency can make us susceptible, rather than understanding the larger issue underpinning the performance,” he warned.
Somaiyaa hopes there will be better understanding and interest in PMS over time. “From a long-term investor’s perspective, I have always held that PMS is a superior platform. As time passes, there will be better understanding of this product,” he said.
Somaiyaa, who spent decades in the mutual fund industry in leadership roles with some of the country’s top fund houses, quit as the CEO & Managing Director of Motilal Oswal Mutual Fund earlier this year.
Since, he has taken up the mantle of CEO at White Oak Capital, a Mumbai-based boutique investment management and investment advisory firm founded by another mutual fund industry veteran Prashant Khemka, former CIO and lead portfolio manager for India equity and global emerging markets equity at Goldman Sachs Asset Management.
“PMS is proving to be a better investment option compared with mutual funds and can deliver superior returns over the long term,” Somaiyaa said.
PMSes offer customised investment portfolios in equity or debt asset classes, wherein a power of attorney is executed by the investor in favour of the fund manager to operate the person’s demat account.
While PMSes and mutual funds are both professionally managed, in the case of the former, the investor owns the underlying asset, unlike in the latter, where they own units representing the stock.
PMSes require a minimum investment of Rs 50 lakh, while in the case of mutual funds, one can invest as little as Rs 500.
“PMSes and AIFs are proving to be a better platform, because of unfettered mandates, performance potential, pricing options , latitude in managing money and better engagement,” Somaiyaa said at PMSBazaar’s PMS & AIF Summit 3.0 on Friday.
He said mutual funds are getting straight-jacketed, with issues such as defined investment universe and individual stock exposure limits, while PMS and AIF offer the flexibility desired to optimise returns.
“First, we have a pre-dictated investment universe – largecap is just top 100 stocks, midcap is the next 150,” he said. “When fund sizes are to the tune of Rs 20-30-40,000 crore, and what is largecap and what is midcap is dictated, it obviously puts a cap on the latitude available to manage these funds,” he said.
He said as a product PMS is far more transparent, and that is where the problem lies, as people tend to get overwhelmed with the ‘availability bias’ as each and every cost is disclosed here.
In a PMS, investors’ portfolios reside in their demat accounts and they can see every trade, price of execution, brokerage, STT, along with details of every expense incurred to manage the portfolio. Mutual funds, too, incur these costs and pay those levies, but they are managed like a generic pool, and everything reflects in one just metric, which is the net asset value (NAV) .
He likened investing in a PMS to ordering from an ‘open kitchen’ wherein the customer can clearly see how the food he ordered was cooked and brought to the table. “When you can see every step the chef takes, you will always have a lot of commentary,” he said.
He went on to compare it with undergoing a surgery without the help of anesthesia. “Imagine you are on the operation table, and while you are being operated, the doctor suddenly says, ‘Oh my God!, that is the wrong place!’ what will be your reaction? You would want to jump off the table and run away,” he said.
“In PMS, there is absolute transparency, and that definitely causes a lot of stress. Too much transparency can make us susceptible, rather than understanding the larger issue underpinning the performance,” he warned.
Somaiyaa hopes there will be better understanding and interest in PMS over time. “From a long-term investor’s perspective, I have always held that PMS is a superior platform. As time passes, there will be better understanding of this product,” he said.
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6 Comments on this Story
Ashok Joshi10 minutes ago Experienced PMS of MOSL (Invesco dawn) and had very poor experience. Pms are like self feeding dragons, who owns no responsibility for assuring returns to clients and keep gobbling down heavy fees under various different headings, even if portfolio making shameful losses. They make undue and uncalled transactions each month just to generate money which just feeds their months fees. All learnings for portfolio manager at the cost of investors money.Direct MF are greatly cheaper on charges, and manageable without getting feeling of being cheated | |
Pingali Naveen36 minutes ago Even in motilal he has advocated PMS .II havw seen in some of his videoa | |
S Mittal37 minutes ago The comments in favor of PMS would have been more meaningful if pros n cons of various facets of MF n PMS were compared item wise. |