Portfolio Management Services (PMS) in India – Complete Guide

by Hemant Beniwal on March 18, 2011

What is Portfolio Management Services or PMS?

Portfolio Management Services account is an investment portfolio in Stocks, Debt and fixed income products managed by a 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 entire fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, your account may be unique. As per SEBI guidelines, only those entities who are registered with SEBI for providing PMS services can offer PMS to clients. There is no separate certification required for selling any PMS product. So this is case where mis-selling can happen. As per the SEBI guidelines, the minimum investment required to open a PMS account is Rs. 5 Lacs. However, different providers have different minimum balance requirements for different products. For Eg Birla AMC PMS is having min amount requirement of Rs. 25 lacs for a product. Similarly HSBC AMC is having minimum requirement of 50 lacs for their PMS and Reliance is having min requirement of Rs. 1 Crore. In India Portfolio Management Services are also provided by equity broking firms & wealth management services.

portfolio management services in india Portfolio Management Services (PMS) in India   Complete GuideThere are broadly two types of PMS

1. Discretionary PMS – Where the investment is at discretion of the fund manager & client has no intervention in the investment process.

2. Non-Discretionary PMS – Under this service, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the investor. However the execution of the trade is done by the portfolio manager.

The client may give a negative list of stocks in a discretionary PMS at the time of opening his account and the Fund Manager would ensure that those stocks are not bought in his portfolio. Majority of PMS providers in India offer Discretionary Services.

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How can investor invest in a Portfolio Management Services (PMS)?

There are two ways in which an investor can invest in a Portfolio Management Services:

1. Through Cheque payment

2. Through transferring existing shares held by the customer to the PMS account. The Value of the portfolio transferred should be above the minimum investment criteria.

Beside this customer will need sign a few documents like– PMS agreement with the provider, Power of Attorney agreement, New demat account opening format (even if investor has a demat account he is required to open a new one) and documents like PAN, address proof and Identity proofs are mandatory. NRIs can invest in a PMS. The NRI needs to open a PIS account for investing in PMS. The documentation required for an NRI, however, is different from a resident Indian. A checklist of documents is provided by each PMS provider.

Working of a Portfolio Management Services (PMS)

Each PMS account is unique and the valuation and portfolio of each account may differ from one another. There is no NAV for a PMS scheme; however the customer will get the valuation of his portfolio on a daily basis from the PMS provider. Each PMS account is unique from one another. Every PMS scheme has a model portfolio and all the investments for a particular investor are done in the Portfolio Management Services on the basis of model portfolio of the scheme. However the portfolio may differ from investor to investor. This is because of:

  1. Entry of investors at different time.
  2. Difference in amount of investments by the investors
  3. Redemptions/additional purchase done by investor
  4. Market scenario – Eg If the model portfolio has investment in Infosys, and the current view of the Fund Manager on Infosys is “HOLD”(and not “BUY”), a new investor may not have Infosys in his portfolio.

Under PMS schemes the fund manager interaction also takes place. The frequency depends on the size of the client portfolio and the Portfolio Management Services provider. Bigger the portfolio, frequency of interaction is more. Generally, the PMS provider arranges for fund manager interaction on a quarterly/half yearly basis.

Portfolio Management Services (PMS) Charges

A PMS charges following fees. The charges are decided at the time of investment and are vetted by the investor.

Entry Load – PMS schemes may have an entry load of 3%. It is charged at the time of buying the PMS only.

Management Charges – Every Portfolio Management Services scheme charges Fund Management charges. Fund Management Charges may vary from 1% to 3% depending upon the PMS provider. It is charged on a quarterly basis to the PMS account.

Profit Sharing – Some PMS schemes also have profit sharing arrangements (in addition to the fixed fees), wherein the provider charges a certain amount of fees/profit over the stipulated return generated in the fund. For Eg PMS X has fixed charges of 2% plus a charge of 20% of fees for return generated above 15% in the year. In this case if the return generated in the year by the scheme is 25%, the fees charged by the PMS will be 2% + {(25%-15%)*20%}.

The Fees charged is different for every Portfolio Management Services provider and for every scheme. It is advisable for the investor to check the charges of the scheme.

Apart from the charges mentioned above, the PMS also charges the investors on following counts as all the investments are done in the name of the investor:

  • Custodian Fee
  • Demat Account opening charges
  • Audit charges
  • Transaction brokerage
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Taxation for Portfolio Management Services (PMS)

Any income from Portfolio Management Services account is a business income. Unlike MF, PMS is not required to remain 65%+ invested in equity to get equity taxation benefit. Each Portfolio Management Services account is in the name of additional investor and so the tax treatment is done on an individual investor level.

Profit on the same can be considered as business income.(i.e slabwise). Profit can be considered as Capital gains. [STCG(15%) or LTCG(Taxfree)]. It depends on clients Chartered Accountant or the assessing officer how he treats this Income. The PMS provider sends an audited statement at the end of the FY giving details of STCG and LTCG, it is on the client and his CA to decide to treat it as capital gain or business income.

How is PMS different from a Mutual Fund?

Both PMS and Mutual Funds are types of managed Funds. The difference to the investor in a Portfolio Management Services over a Mutual Fund is:

  • Concentrated Portfolio.
  • Portfolio can be tailored to suit the needs of investor.
  • Investors directly own the stocks, rather than the fund owning the stocks.
  • Difference in taxation

This article is written by guest author Madhupam Krishna. A Post Graduate in Finance, currently he heads sales function for Rajasthan for Principal PNB Mutual Fund.

Disclaimer: This post represents the opinion of its author only, and does not in any way reflect the opinions of  the author’s employer, The Financial Literates or the other authors who write content for this Website.

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{ 56 comments… read them below or add one }

1 Jitendra Solanki

Hi,

Good one.

But there has been a long debate going on the charges of PMS which is on a higher side.Also, the performance of most of the PMS Scheme has been very dismal.Even the best of schemes have not been able to meet the target.

Then its become really difficult to invest in a scheme which is dependent on the fund manager.Recently also change in SEBI stance towards PMS service providers has prove the fact that “All is not Well”.

Look at Kotak PMS.It has been a big disaster for investors.

What are your views .

Reply

2 Hemant Beniwal

Hi Jitendra,

Rightly said.

Actually they are very complex but HNIs invest in them – as they think it is personalized. My view is people should avoid them.

Reply

3 Shinoj Jose

God Article. Informative.
But there was no info about the possible mis-selling and traps. Believe me, this is more dangerous than insurance schemes, The reason is that people are not aware about this fully. And of course, it’s complex.

The most dangerous part is the profit sharing part. Even if the final output is in loss, the initial input will be considered as the benchmark.
Ex. You invested 20 Lakhs.
After one year it became 25 lakhs.
So 25% profit. Agreed.

Now next year this 25 percent becomes 21 lakhs.
So around 16% loss. But you will be surprised to hear from them that you have got 5% profit.
This is because always they benchmark on the initial amount, that is 20 Lakhs.
And they will happily execute the profit sharing.

Second trap here is the actions they do in order to get the brokerage fees. I have seen that most in PMS, there will be too much buying and selling of shares on behalf of you. Why? Since they themselves are the brokers, they will get a good amount of money as brokerage.

Again, there are no clear and transparent rules regarding PMS in India. So charges are not standard. And there are lot of charges. And there are asterisks and hashes.

For the past few years, most PMS’s were disasters.

Regards,
Shinoj Jose

Reply

4 Hemant Beniwal

Hi Shinoj,

Fully agree with you – mis-selling to HNIs. More Gain to PMS providers.

This is just information on PMS rather than any recommendation. Just to share charges, taxation & working.

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5 Shinoj Jose

Yes, I understand. I just wanted to make sure that people should learn from all angles.
Shinoj

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6 Mathew

Hi Shinoj,

PMS no longer works by the model you claim. SEBI has introduced the high watermark concept which all PMS providers adhere to now.

When one opts for a performance-based fee, the profits are reckoned on the basis of “high watermarking”. That is, one pays the fee only on the positive returns on his portfolio.
For instance, if one invests Rs. 100 in a PMS and its value appreciates to Rs. 150 at the end of the year, he pays a fee on the profit of Rs. 50. Subsequently, a fee will be levied only on gains over and above the Rs. 150 mark. If the value of his portfolio slumps to Rs. 70, and climbs back to Rs. 110, the Rs. 40 you earn will not be reckoned as profit. You will again be charged a fee only if the value of your portfolio recovers to over Rs. 150, the previous “high watermark.”

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7 Sumit Tandon

Tell me one place where I can compare and evaluate performance of various PMS offered. I will agree with you.

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8 Sumant

PMS schemes are worse than Ponzi Schemes (for investors, I mean. Not for the fund management companies and brokers).
It has conflict of interest written all over it.
Diversified Mutual funds, Index funds, ETF are the way to go for equity investments. (And ULIP if you find a low cost one and you don’t want or can’t have any involvement in investments).
All this talk of “HNI need more control/concentration/active management” is B.S. peddled by PMS sellers.

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9 Hemant Beniwal

Well said Sumant,

This article is actually written by Madhupam & in the end he left some space for my views “HEMANT’s View on Investing through PMS schemes”. He was sure that I am not going to write in favor of PMS.

Due to time constraint I thought I will share my views in comments rather than adding them in article. But you & Shinoj even saved me from that.

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10 BINU

can anyone provide me good portfolio management providers in kochin or nearby.

thanks

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11 Hemant Beniwal

Hi Binu,

No idea about kochin but are you serious about taking PMS after reading comments from these readers.

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12 cherian

PMS by porinju is famous in advertisement.Always better to skip PMS.

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13 Hemant Beniwal
14 Ram

Well written. I am yet to see any PMS creating significant alpha. If all they are doing is passive tracking against benchmark and claim glory then investors could do better than them by taking the VIP (and not SIP!!) approach – acronym for Value Averaging Investment Plan. This is a new kid on the block akin to dollar / rupee averaging just that it is not COST but VALUE averaging. Investors are in controls of their decisions and also Profits!!

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15 Hemant Beniwal

Hi Ram,
Do you know there are many limitations attached with VIP??

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16 binu

What is the best way to invest safely with good returns in stock market
any body help

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17 Hemant Beniwal

Hi Binu,
MF will be a better choice but I don’t know what you mean by safely.
Read this
http://www.tflguide.com/2010/11/what-is-equity-understand-its-right-meaning-to-reap-the-benifit.html

Reply

18 binu

Hai readers thank you all for the valuable advices

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19 Karan Shah

Hi,

Hope everyone is doing fine. I am actually new to this website, and was glad to read well-rounded views on PMS. I live in New York, and thus has been little away from this industry in India, but seems like PMS is not much different than Hedge funds in USA.
One question I had, was about structured products/participatory notes/equity-linked notes/principal protected notes. Does anyone here have any idea, that as an issuer/dealer if I would like to offer those kind of products to domestic (Indian) investors, what kind of license I would require? Do I need to get registered as PMS with SEBI?

Any ideas/references would be appreciated.

Karan

Reply

20 Hemant Beniwal

No idea Karan.

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21 ashok

Yes KARAN
You must be registered with SEBI to start a PMS product, in any kind of underlying security…

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22 Prakash

I invest equity and MF my self. I am new to the PMS concept. Not sure if it is good bet. Recently came across with Karvy PMS. There I learned SEBI has created guidelines and all PMS company has to follow.

Does anybody has actually used PMS from any company? Would be good if you can share your experience.

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23 Vikas

Hi Prakash,

PMS schemes have not been able to deliver their objective primarily because lot of bet is taken on short term views of the market and even the wrong stocks are chosen.

Yes, now SEBI has also created many guidelines like minimum investment amount and no pool basis investment which all the registered PMS has to follow.

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24 Kirti

As mentioned in article “As per the SEBI guidelines, the minimum investment required to open a PMS account is Rs. 5 Lacs. ” how many of us have the investment amount of Rs 5 lacs at one go?

Reply

25 Kunal Shah

Hi,
A very good article to read.
I have a question and I hope someone can help me here.

I am a financial consultant and intend to take up asset management. Now I am planning to open up a proprietorship company and will ask my client to deposit their monies in the account.

Now,
what are the legalities that I need to take care of?
how about taxation? will there be double taxation and if so how can I avoid it?
Is it possible to avoid double taxation if all my clients sign participatory notes and becomes participant in the said proprietorship company?

Thanks for the help, hope to hear from a learned one soon.

Reply

26 Amit

Hi there, i want to know if i invest in PMS with 2 other joint holders, will the tax implication be on only the first holder or all of the three holders?

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27 Hemant Beniwal

Hi Amit,
Tax liability will be on first holder.

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28 gorak

sir,
can u tell which are the top ten portfolio management service provide in india., and gradings of those top ten companies

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29 Vikas

Hi Gorak,

No such comparison is available.

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30 Shailendra

I think if one is ready to take so much of risk as he is opting for PMS then i would suggest him to go for direct investing in equities and any other option on SIP basis rather than at one go investment which is at high risk. So go for a self portfolio management instead of any PMS provider as if one is ready to take risk of stock market then he must be ready to learn the complexities of stock market.
No one can care better for your money than you .

Reply

31 ashish

Hi,

I had invested in Karvy PMS in Oct 2010 with a corpus of Rs. 5 lac.
They had made a lot of promises, however presently the value of my portfolio is less than 2.5 lacs.
I have observed that they buy a scrip at an x cost and then sell it at a much lower price rather than holding or averaging it. i know that it is sometimes to get out with a loss, but it is not true in almost all cases. what i mean is that if they claim to be a PMS service provider, do they not have enough expertise not to buy such shares. Also they must invest in a few blue chip companies to ensure that in bad times the erosion is not huge and only minimal.

ANY COMMENTS !!!

Reply

32 Vikas

Hi Ashish,

In a PMS the discretion of buying or selling is of the Fund Manager and the main objective is to maximize the returns. To achieve this short term views are taken and that’s where most Fund Managers go wrong.

A buy and hold strategy is good for investing and producing consistent returns, but it may not be very high. Considering the high cost in PMS along with profit sharing the churning is implemented to earn higher returns. This strategy has not paid well as equity markets are difficult to predict in short period.

Thus , this strategy may not hold good for these schemes.

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33 Raju

I am planning to invest in pms of motilal oswal. What is best suggested ? Mutual fund or PMS

Reply

34 Vikas

Hi Raju,

Surely a Mutual Fund has many benefits which PMS is not able to deliver. What you need to consider is that any investment which has a short term objective will be at a higher risk in asset class like equities. So a Fund Manager who takes long term view will be more efficient then a FM with a short term objective. You need to consider this rule along with taxation aspect to identify which avenue is more appropriate.

Reply

35 Sumant

@Raju
is there any evidence that this pms has delivered better than market returns over a long term?
A typical equity mutual fund costs 2.5% each year. An Index based ETF costs about 1%. What’re the expenses of this pms?

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36 Raju

Hi Sumanth

This pms has delivered better than market returns since inception -dec 2007 beating bench mark index cnx nifty. expenses are 2%-3%per year.

Reply

37 Sumant

Source of this? Did it beat the market after expenses are deducted?
Even if it did, that’s no guarantee that it will beat the market in the *next* 5 years… which is when you’d be investing.

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38 Ravi

Guys, I want to warn you not to go for Prabhudas Leeldher PMS, I learned from others that Prabhudas Leeldher is the worst fund managment who are selling in brand name of Sandip Sambharwal. This fund manager was earlier SBI Magnum mutual fund manager where he did good job and got an award (may be the market was good that time and he was lucky enough to time it correctly) and his sales(Prabhudas Leeladher) people are using his brand name to sell his PMS products. He gave me 40% losses while market was down only by 7%. I thought PMS can beat the market and for that only we pay the fee to them but this is worst ever mistakes I made. While tried to discuss the sales people of Prabhudas leeladher, who used to make rounds at my office and home until I gave them cheque were not bothered to pick my phone or ever reply to may mails, phone calls or sms. Tried to speak to Sandip Sambarwal but he do not want to talk, for 3 weeks consistently he kept me telling that he will call today or tomorrow. Everytime some or other excuse he came up with.
This company is not even ready to sell my holdings on my instructions which is a horrible experience.

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39 Hemant Beniwal

Hi Ravi,
This is shocking – thanks for sharing.

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40 Y P Rao

My potfolio is worth around Rs 25/ lakhs plus. Some mkting people are canvassing with me to consider PMS of Ing Vysya for my stocks.
If anyone has exp with the above firm ,pl let me know as I am having reservations on PMS after going thro the experiences.

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41 Vikas

Dear Mr. Rao,

Do self-evaluate a PMS scheme on various parameters before making your decision.Ensure that it meets your objective with regards to cost and other benefits.

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42 chandrasekhara rao dadi

Hi.guys till today I was with a great hope that my funds would be utilised in proper way and earn me great income by investing in PMS, by viewing all your sharings and experiences, why should we go for a platform which do not have balance to stand thanq guys

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43 Sunil Kumar Jindal

hi,

I am businessman. I want to invest through PMS in the name of my company.
Pls let me know the PMS fees paid is a deductible expenditure from my Business income or not.

Regards,
sunil

Reply

44 Vikas

Dear Mr. Sunil,

You should consult a CA who will be the right person to guide you.

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45 N C Gupta

My experience with Motilal Oswal in PMS investments have been very good. I invested in 2005 and still continuing. But now it appears Motilal Oswal has become too big for its clients specially if one has relatively small sum.
Now SEBI has also notified that PMS investment would start from Rs. 25 lac instead of Rs. 5 lac.
Virtually PMS is over for us small investors. Only MFs are there.
N C Gupta

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46 M

Hello All,

I had very very bad experience with PMS services in India. I had used HDFC PMS service.
My advice to anybody who wants to invest in India go via Mutual Fund. Only if you want to get looted then feel free. I mean seriously. They will be playing with your money and top of that you will be paying them for annual charges also.

I had trusted HDFC PMS just because of brand HDFC but they even do not talk to each other. HDFC Bank and HDFC PMS only have HDFC name in common. For rest they act like strangers. When you want to open account PMS guy will call you but when you have problem they do not bother to call you. They also have minimum 2 years lock in period.

What I heard is that do not go via PMS root in India. Please inform it to all your friends and loved ones.

Good luck !!!

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47 Sumant

Sorry to hear about the bad experiences with PMS. I am pretty sure this is not specific HDFC PMS. The whole structure is rife with conflicts of interest (this is true in general with most financial products in India, not just PMS). Let’s do ourselves a favour. For equity investments, let’s stick to diversified equity mutual funds with low expense ratio. Or better still, Index based ETFs which don’t have any fund manager.

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48 Deesha Shah

Do you have any views on “banyan tree advisors” company offering PMS services.

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49 mohit behl

good info is there any PMS offering fixed / gaurented return on your investment….

Reply

50 vinay

Hi,
I’m interested to become a portfolio manager.
what i’m required i.e study,money,permissions
please reply

Reply

51 Aurelia

I’d like to know how PMS have lock in period for their investors? under what regulation or law are they allowed to have lock ins?

Reply

52 Tharun

Hi,
I want to know how to start a PMS service.
Any course to do for this, educational background,any experience.
If any courses please inform me.
Thank You.

Reply

53 Rahul Dave

Hi,
I am also thinking about investing in Angel Broking’s scheme called Angel Gold. The sale man called it PMS but the required investment in the scheme isn’t fall into the category of PMS as mentioned above (Min 1 Lac to Max 4 Lac).
The charges are 2% of the Investment and will be charged on half yearly basis. He has shown me the details of some of the existing clients and ensured me that the minimum return that I’ll be getting would be in the range of 15-20% annually. The scheme does not have any locking period or any exit load
Is there anybody in this forum who knows about this scheme or can throw some light on this scheme?

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54 Prashant

Please provide us the clarification on below mentioned point.

Scenario 1
PMS and Demat account Applicant signature pattern is Mr. A and Mrs. B and the corpus amount we are getting from the bank account of Mrs. B only.
Can we accept the receipt of the corpus.

Scenario 2
PMS and Demat account Applicant signature pattern is Mr. A and Mrs. B and the corpus amount we are getting from the bank account of Mrs. B and Mr. A joint account
Can we accept the receipt of the corpus

Reply

55 Dave

I was also thinking of Sundaram’s PMS since their salesperson is after me. They claim that their portfolio is long term. However I am very skeptical and was researching about PMS, didnt get any concrete information or comparison. I think this is the best place so far.

But I am inclined to do it myself than to go for Sundaram.

Reply

56 rajan tk

i wants to open a company in which people invest money by buying its share.the work of the company is to invest in stockmarket by me.is this type company can be listed on stock market.

Reply

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