Portfolio Management Services
About Portfolio Management Services
Portfolio Management Services (PMS) represent a licensed and professional investment offering tailored to meet the specific goals of a distinct segment of long-term investors. The PMS sector in India operates under the regulatory purview of the Securities and Exchange Board of India (SEBI), which delineates the requisite guidelines and standards for PMS providers.
Specialized financial firms extend Portfolio Management Services (PMS) to oversee the investment portfolios of high net worth individuals (HNIs), ultra-high net worth individuals (UHNIs), non-resident Indians (NRIs), and institutional clients. Acting on behalf of their clients, PMS providers curate bespoke portfolios encompassing stocks, bonds, mutual funds, and diverse securities, aligning these investments with the clients' specified investment objectives and risk tolerance levels. These services are subject to fees, typically structured as a percentage of the assets under management (AUM). Portfolio management means figuring out how to invest your money wisely. It involves using methods and plans to match your investment decisions with what you want to achieve, how much risk you're okay with, and where you want your money to go. The main goal of all portfolio management methods is to find the right balance between how much risk you take and how much you could gain.
PMS providers in India offer a spectrum of portfolio management strategies, encompassing approaches such as value investing, growth investing, income investing, and quantitative investing, among others. These entities maintain a practice of regular communication, furnishing clients with updates and comprehensive performance reports.
PMS Services are offered by asset management companies, brokerage houses and boutique (independent) PMS houses. Based on the product class in which they invest, PMS can be equity based, fixed income based, commodity, mutual fund or multi asset based.
Their primary aim is to secure superior returns on clients' investments while adeptly navigating and mitigating associated risks.
Types of Portfolio Management Services
Following are the two major types of portfolio management services:
Discretionary Portfolio Management Services:
According to the 2020 Portfolio Managers Regulations by SEBI, a "discretionary portfolio manager" refers to a manager who, under a portfolio management agreement, has the authority to make decisions regarding the investment of funds or the handling of a client's securities portfolio. Essentially, this manager independently oversees and controls each investor's funds as per the terms of the agreement. This may involve employing a predefined investment strategy provided by the manager or tailoring the approach to meet the specific needs of the client.
Non-discretionary Portfolio Management Services:
A non-discretionary portfolio manager operates by adhering strictly to the instructions given by the client. In this arrangement, the portfolio manager refrains from exercising personal discretion in making buying or selling decisions. Every transaction requires consultation with the client, who retains authority over decisions like 'What to buy/sell?' and 'When to buy/sell?'. While the portfolio manager executes the trades, the responsibility for investment management rests entirely with the investor. Consequently, in this scenario, the portfolio manager offers investment execution services rather than investment management services.
Minimum Investment Requirement
SEBI has stipulated a minimum investment threshold of Rs. 50 lakhs for individuals to access PMS services.
Entities that can invest in PMS
The following entities can invest in PMS with a minimum investment of Rs. 50 lacs:
Individuals
Non-resident Indians (NRIs)
Hindu Undivided Family
Proprietorship firms
Association of person
Partnership Firms
Limited liability Partnership
Trust
Body Corporate
Joint holder in PMS
An investment made in PMS (Portfolio Management Services) has the option of being jointly held. The investment documentation is established in the name of the primary holder, and all associated benefits, such as dividends, interest, and redemption proceeds, are credited to the primary holder's account. For joint holdings, it is mandatory that all holders collectively sign the application and adhere to PAN and KYC norms. The operational mode of the account can be single, joint, or based on the 'anyone or survivor' criteria. Any modifications to the operational mode or alterations regarding additional or removal of joint holders require the signatures of all holders involved. In the case of a demat account, it is important to note that the addition or removal of holders is not permissible once the account has been opened.
Fees for Portfolio Management Services
The portfolio manager charges an agreed-upon fee on clients for providing portfolio management services. Detailed information regarding the specific fees and expenses will be included in the client agreement as an integral component.
These charges can be in the form of investment management and advisory fee, custodian fee / depository fee, registrar and transfer agent fee, brokerage and transaction costs, certification charges, fund accounting charges and professional fee, out of pocket and other incidental expenses like statutory levies, telephone expenses, opening of bank, trading and demat accounts and any other expenses incurred by the portfolio manager, on behalf of the client.
Exit Load Charges
In case client portfolio is redeemed in part or full, the maximum exit load charges mandated via Regulation of Fees and Charges circular issued by SEBI shall be as under:
a) In the first year of investment, maximum of 3% of the amount redeemed.
b) In the second year of investment, maximum of 2% of the amount redeemed.
c) In the third year of investment, maximum of 1% of the amount redeemed.
d) After a period of three years from the date of investment, no exit load.
Taxation of PMS
In Portfolio Management Services (PMS), investors have direct ownership of stocks. All transactions, including discretionary actions, are executed directly from the client's Demat account. A PMS Client may earn the following type of income and the taxation of each type is as follows:
Income from dividend on shares and income from units of mutual funds get taxed as income from other sources
Income from interest on Fixed Income Securities get taxed as income from other sources
Short-term and/or long-term capital gains (or losses) on sale of Securities (shares, debentures, rights renunciations, units, etc.), if gains are categorized as capital gains.
Business Income (loss) from purchase and sale of Securities (shares, debentures, rights renunciations, units, etc.), if gains are categorized as business income (in some cases).
The above list is indicative and investor should get advice from his tax professional in this regard before making any decision.
DISCLAIMER
This presentation is for information purposes only and does not represent any financial, legal or other advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instruments including stocks or Mutual funds. The information contained in this presentation is general in nature. The data is collected from various sources like print media, electronic media and social media.
Before making any investment, please consider carefully all risks prior to investing in any security of financial instrument and consult an independent financial advisor with regard to any envisaged investment in stocks.
Investment in mutual funds are subject to market risks, read all scheme related documents carefully before investing. The past performance of the markets is not necessarily indicative of future performance.
We do not intend to hurt sentiments of any community, sect, religion, political party or individual. We stand neutral on all aspects.
GKFS LLP is a NISM certified Portfolio Management Services (PMS) Distributor