Should you invest in a PMS?
Portfolio management services as a product is a unique and customised fund management service which is specifically designed for the HNI and UHNI investors. PMS offers a high degree of risk and hence investors get rewarded with higher returns. It offers many benefits to the investors namely,
Investment backed by Expert portfolio managers
A PMS is a concentrated portfolio of stocks and is a wealth management scheme, managed by the professional portfolio managers that offer customised investment strategies to build wealth from the opportunities arising in the market. Hence with all diligence, the portfolio is well poised to generate superior returns.
Well Regulated Product
PMS is governed by SEBI (Portfolio managers) regulations, 1993 making it more transparent and well regulated financial product.
Helps in maximizing returns on Investments
A PMS is managed by a dedicated portfolio manager backed by strong research and analytics. The portfolio management team further extensively researches the ongoing trends in the market and takes informed decisions at the right time and this in turn highly benefits the investors. Because they carry a high degree of customisation and concentration of portfolio, it helps investors earn higher returns in the equity space.
Portfolio management services also have some drawbacks making it extremely cautious for the investors investing in it, and arising the question that shall we invest in PMS? These key challenges arise because of the structure of the product namely:
Higher Investment amount required
The minimum Investment corpus required for investing in a PMS is 25 lacs; thereby making it a product solely for the HNI and UHNI investors. Though as a matter of fact, PMS is a product designed for seasoned investors, hence it requires a good capital amount to be invested.
FMC is high
The fixed management charges under a PMS generally varies from 1.5%-2.5% annually; making it an expensive product in comparison to the other similar products available in the market This is primarily because Portfolio Management Services require a huge in-depth study and research of the top-performing stocks; hence the fund management team charges such amounts.
The high degree of risk
Because it is a highly concentrated product of stocks, it carries a high degree of risk which leads to the question that shall we invest in PMS. An investor’s investment amount is spread across the top 10-15 stocks making it highly vulnerable to the market risks.
Tax inefficiency
Under other Equity product, where the taxes are simple and easy to be charged. The taxation under the PMS is bit complex because the tax is charged at the transaction level, the tax is levied as and when the portfolio is churned by the fund manager.
