By Trideep Bhattacharya
The last year of the decade and clearly the one which tested the human race to the very brink. As we enter the New Year, we are filled with optimism and hoping that the beginning of the end with respect to the pandemic is here and we will see brighter days again. But as we stand today, things are already looking brighter in the investment environment relative to six months ago when the atmosphere was gloom and dull.
Equity markets have recovered much better than expected and to everyone’s surprise have continued the momentum to make new life time highs. The last 9-12 months have once again proved why it is essential to stay invested in equities as an asset class and why it remains one of the best wealth creating asset classes.
Making money in the market requires a certain degree of expertise from the fund manager along with a healthy appetite for risk from the investor. While some people start off early and eventually figure a way out on their own, a majority of investors are unaware of how to effectively manage their equity allocation.
These are people who have large amounts of money and are seeking help from professional money managers for the purpose of earning above-average returns from their savings. Because of their wallet size, they might have outgrown investing in a mutual fund and are looking for a sophisticated avenue to allocating their capital.
This is where Porfolio Management Service (PMS) comes in… While the ultimate objective is the same i.e. to create wealth for investors, it does have deeper nuances which separate it from a mutual fund.
What is a PMS?
A Portfolio Management Services (PMS) is a sophisticated investment solution that offers high net worth investors a range of specialised investment strategies to capitalise on opportunities in the market. PMS is an active portfolio management offering in which the portfolio is constructed as per the investment objectives and constraints specified by the client. The client has access to the services of a professional investment manager.
There are two types of PMS in India
Discretionary PMS: In a discretionary PMS, the clients’ funds are managed by the portfolio manager who is responsible for stock selection and executing investment decisions.
Non-discretionary PMS: A non-discretionary PMS is a consultative investment approach wherein the portfolio manager suggests investment ideas. The choice and timing for investment rests with the investor while the execution of the investment decision is done by the portfolio manager.
Why should an investor consider investing in a PMS?
Professionally managed equity investments tailored to your investment mandate
A PMS is a professionally managed direct equity investment backed by sound market
research tailored to your investment needs. An investor also has the option to maintain a blacklist of stocks they do not wish to invest in, thus highlighting the customization aspect of constructing a PMS portfolio.
Your portfolio performance depends solely on your actions
Since an investors allocations are done in an individual Demat account, the performance of one investor will be unaffected by actions of other investors. This is because stocks are maintained in each individual investors accounts and are not subject to pooled treatment like in case of a mutual fund.
Well researched stock ideas based on underlying theme of PMS strategy
Each PMS portfolio has a well identified underlying theme basis which the portfolio is constructed. The output is a well-researched portfolio of around 25-30 stocks which is closely monitored and allocations are heavier towards high conviction ideas.
Freedom to deploy funds in a phased manner
An investor has the flexibility to deploy the funds in a phased manner via the STP route. This is ideal for a large ticket size of Rs 50 Lakhs as markets can be sometimes volatile in the short term.
Superior service and market access
The word PMS is synonymous to superior service and customization. While customization is possible via portfolio creation, superior access means constant communication via the fund managers. An investor investing in a PMS has access to the fund manager, in-depth research and communication which enable complete transparency with their investments.
Flexibility to invest across market capitalisation
Unlike Mutual Funds, an equity PMS has the flexibility to invest across market caps as there no pre-defined limits that a Fund Manager needs to adhere to. This gives the fund manager an opportunity to spot alpha opportunities irrespective of the market cap, which can potentially help in adding incremental returns to the investor portfolio.
A PMS is ideal for an investor wanting to take exposure to equities and has a larger ticket size. A PMS will offer portfolio customization and superior service which differentiates them from all other investment alternatives.
The writer is a senior portfolio manager in Alternative Equities, Axis AMC
