Understanding Portfolio Management Services: A Comprehensive Guide

Tue, 20 Aug 2024

5 min read

Portfolio Management Services (PMS) are professional services provided by financial institutions or wealth managers to manage investments on behalf of clients. They invest in stocks, fixed income, debt, cash, structured products, and other individual securities, and are managed by professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the fund. PMS boasts a more concentrated portfolio in contrast to mutual funds, resulting in potentially higher returns but also increased risk.

• Types of PMS:

  Portfolio Management Services (PMS) can be broadly categorized into two main types based on the investment strategy and asset allocation:
  
  Discretionary PMS: In discretionary PMS, the portfolio manager has the authority to make investment decisions on behalf of the client without seeking prior approval for each transaction. The portfolio manager has the flexibility to buy or sell securities based on their analysis and market conditions, aiming to achieve the client's investment objectives.
  
  Non-Discretionary PMS: In non-discretionary PMS, the portfolio manager provides investment advice to the client, but the final investment decisions are made by the client. The portfolio manager recommends investment opportunities and strategies based on the client's risk profile and investment objectives, but the client has the discretion to accept or reject the recommendations. The client has the freedom and flexibility to tailor his portfolio to address personal preferences and financial goals.

• Who is an Ideal PMS investor?

  The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth.
  The offerings are usually ideal for investors who are looking to invest in asset classes like equity, fixed income, structured products etc, who desire personalised investment solutions, who desire long-term wealth creation, who appreciate a high level of service. The minimum amount required to invest in PMS is 50 lakhs rupees.

• Why should you invest in PMS?

  • Professional Expertise: PMS provides access to professional portfolio managers who have extensive knowledge and expertise in managing investments. These managers stay updated with market trends, company events, and investment strategies, enabling them to make informed decisions on behalf of the investors.
  • Customized Approach: PMS offers a personalized and customized investment approach based on the investor's risk appetite, and investment horizon. The portfolio managers assess the investor's requirements and create a portfolio that aligns with their specific objectives and preferences.
  • Diversification: PMS enables investors to diversify their portfolios across various asset classes, such as equities, bonds, mutual funds, real estate, and alternative investments. Diversification helps reduce risk by spreading investments across different industries, sectors, and geographical regions, thereby potentially reducing the impact of any one investment performing poorly.
  • Active Monitoring: Portfolio managers actively monitor the investments in the portfolio and make necessary adjustments as market conditions change. They continuously evaluate the performance of individual investments and rebalance the portfolio to maintain the desired asset allocation and risk profile.
  • Exclusive Investment Opportunities: PMS often provides access to exclusive investment opportunities that may not be available to individual retail investors. These opportunities could include initial public offerings (IPOs),non convertible debentures and other alternative investments that offer potentially higher returns.
  • Transparency and Reporting:  PMS offers transparency in terms of tracking the investments and portfolio performance. Investors receive regular reports and statements, detailing the performance of their portfolio, allocation of assets, transaction history, and any fees or charges incurred. This allows for a clear understanding of the investment progress.
  • Tax Efficiency: Portfolio managers in PMS prioritize tax efficiency while managing the portfolio. They consider tax implications and strategies like tax harvesting, capital gains management, and structuring investments in a way that minimizes tax liabilities. This approach helps investors optimize their after-tax returns.
  • Flexibility and Liquidity: PMS offers flexibility in terms, lock-in periods, and redemption options. Investors can choose from different PMS schemes that cater to their investment preferences and liquidity requirements.

• Taxation on Portfolio Management Services:

  In PMS the investments are made in the name of the investor and hence taxed at the investor level
  
  Listed Equity:
  
  Short-term capital gains (STCG): Taxed at 15% if the units are held for less than one year.
  
  Long-term capital gains (LTCG): Taxed at 10% without indexation if the gains exceed ?1 lakh in a financial year.
  
  Debentures and Bonds : Interest income is charged as per tax slabs of investor. 
  
  STCG: Taxed at the individual's applicable income tax slab rate if the Bonds are held for less than three years.   
  
  LTCG: Taxed at 20% with indexation if the   bonds are held for more than three years.  
  
  To bring it to a close
  
  At InCred Premier, we believe in staying ahead of the curve. PMS are not just opportunities; they're gateways to unlocking your financial potential.
  Connect with us, and let's embark on this exciting journey together. You may reach out to us at care@incredpremier.com