Equity PMS

PMS or Portfolio Management Service is a professional service where qualified and experienced portfolio managers backed by a research team manage equity portfolios on behalf of clients instead of clients managing it themselves. They are managed for a fee and everything including, research, investing, operations, etc. are available to the investor.

PMS could either be Discretionary; i.e. where the fund manager takes decisions on investors’ behalf or Non-Discretionary; i.e. where the fund manager needs to take approvals from the investors on suggested investments. For every PMS investor, the Portfolio Manager creates a segregated demat account where his portfolio is held on his behalf. The Portfolio Manager has to be provided with a power of attorney to transfer stocks in and out of the demat account.

The minimum investment in such PMS schemes are regulated by SEBI which is at present Rs.50 lakhs.

The main advantage of PMS is the independent nature of the portfolio. PMS Holdings are isolated and hence not impacted by other investors behavior.

Mutual Funds being managed and held as a pool may be at times exposed to vagaries of the sum total behavior of hundreds of thousands of investors. In general, investors tend to invest in rising markets or improving fund performance and there could be times of panic in rapidly falling markets and times of poor fund performance. It may happen that mutual funds at times are forced to buy in rising markets and sell in falling markets because fund managers have discretion on stock picks but not on fund flows. Apart from managing the portfolio, managing fund flows is a significant activity on a daily basis. As far as PMS is concerned, every investor influences his own buying or selling time and price, there is no impact on other investors’ holding or experiences. PMS has isolated individual holdings so one investor’s behaviour doesn’t impact other investors investments.

The main disadvantage of PMS is the taxation. In a mutual fund, any portfolio reshuffling done by the fund manager does not attract tax. When the investors redeem from the mutual fund, then only the tax incidence happens. However in a PMS, any selling comes with tax incidence. It also has more documentation work as PMS accounts entail opening of a segregated demat account and registering a power of attorney in favour of the portfolio manager, the documentation tends to be onerous as compared to Mutual Funds.