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Investing can be complex, especially for those looking to manage a larger portfolio. Portfolio Management Services (PMS) provide a refined approach.
Managed by professionals and regulated by the Securities and Exchange Board of India (SEBI), PMS caters specifically to high-net-worth individuals who seek more personalised investment strategies. Unlike mutual funds, PMS allows direct ownership of securities, providing a more tailored investment experience.
In this blog, we will explore the concept of PMS, the minimum ticket size for PMS and discuss its implications for potential investors.
PMS overview
PMS provides a tailored investment solution where skilled portfolio managers handle a personalised portfolio for each investor. Unlike mutual funds, where investments are pooled, a PMS involves direct ownership of securities managed within a demat account. This service caters primarily to high net-worth individuals looking for specialised management of their investments.
PMS offers a combination of equity, fixed income, debt, and other securities, meticulously chosen to align with specific financial goals. Portfolio managers leverage extensive research and market insights to make informed decisions, aiming to maximise returns while managing risk. This systematic approach allows investors to remain hands-off yet fully informed about their investment strategy and performance.
Types of PMS
In general, there are two types of portfolio management services, depending on the degree of authority given to the portfolio manager:
Discretionary portfolio management: Under this arrangement, the portfolio manager is fully empowered to oversee the investor’s portfolio without requiring permission for each transaction in advance. The manager considers the client’s objectives, risk tolerance, and investment horizon while making decisions. This strategy is appropriate for investors who would rather leave making investment decisions to a professional.
Non-discretionary portfolio management: Here, the portfolio manager acts as an advisor rather than having full control over investment decisions. The manager makes investment recommendations and only completes transactions with the client’s approval. This type is preferred by investors who wish to be more involved in decision-making processes regarding their investment portfolio.
Both types aim to tailor investment strategies to individual needs, providing a personalised approach to asset management. Investors can choose between these services based on their investment style, trust level, and desire to participate in managing their investments.
What is the minimum ticket size for PMS?
To open a PMS account, you’ll start by choosing a PMS provider and setting up a new demat account specifically for your PMS investments. Even if you already have a demat account, a separate one is necessary to ensure all transactions are exclusively for your PMS activities.
This process involves signing two key documents: an agreement covering fee structures and investment strategies and a power of attorney (POA), allowing your portfolio manager to buy and sell securities on your behalf.
The operation of a PMS involves a portfolio manager actively managing 20 to 30 stocks or other securities, often organised around specific investment themes such as value or growth investing. This customised management is designed to align closely with the investor’s financial goals and risk profile, differing significantly from mutual funds which are more standardised and have much lower entry points.
The PMS minimum ticket size is ₹50 lakh. This requirement is set to ensure that the service remains exclusive to individuals who have substantial resources and are looking for a personalised investment approach. This amount can be in cash or equivalent in securities, emphasising the service’s focus on catering to more affluent investors seeking tailored investment solutions.
Who should invest in PMS?
High Net Worth Individuals (HNIs) or Ultra-High Net Worth Individuals (UHNIs) that have sizable investable capital and are seeking specialised investing techniques are the ideal candidates for PMS. The minimum ticket size for PMS is ₹50 lakh, reflecting its focus on investors who can allocate substantial amounts to actively managed portfolios.
PMS is ideal for those who seek more personalised attention from their fund managers and wish to explore investment opportunities beyond traditional mutual funds, especially in mid-and small-cap stocks. Investors interested in PMS should be comfortable with active fund management and the associated risks and be prepared for a hands-on approach to managing their investments.
The service is not recommended for those with smaller investment amounts or for whom a PMS ticket size of ₹50 lakh investment represents a large portion of their total assets. For most retail investors, simpler investment vehicles like Systematic Investment Plans (SIPs) in mutual funds may be more appropriate and less risky.
In 2019, SEBI mulls hiking the minimum ticket size for investment in PMS from ₹25 lakh to ₹50 lakh. This hike is intended to deter smaller investors from investing in high-risk products like PMS, which are better suited for more prudent investors with bigger portfolios.
Bottomline
PMS are best suited for affluent investors seeking personalised investment strategies. The increased minimum PMS ticket size requirement of ₹50 lakh emphasises its focus on higher risk and return profiles, making it ideal for high net-worth individuals but less appropriate for average investors.
FAQs
The minimum ticket size for portfolio management services is set at ₹50 lakh by the Securities and Exchange Board of India (SEBI). This limit is maintained to deter smaller investors from entering into high-risk investment products like PMS, which are more suitable for financially aware investors with larger portfolios. This approach ensures that PMS is tailored to those who have the capacity to understand and manage the associated risks effectively.
The limit for investing in portfolio management services is set at a minimum of ₹50 lakh. This threshold, established by the Securities and Exchange Board of India (SEBI), is designed to restrict PMS access to financially sophisticated investors with substantial assets. The limit ensures that PMS, a high-risk investment service, is utilised by those who are capable of undertaking and managing such risks, aligning with their larger investment capacities and financial goals.
PMS fees typically include several components: an entry load of 1% to 3% charged at the time of investment, a management fee of 1% to 3% assessed quarterly, and a profit-sharing fee, which is a percentage of the profits generated by the portfolio. Additionally, an exit load ranging from 1% to 3% may be applied if investments are withdrawn before a specified period, usually between 1 to 3 years. These fees compensate for the specialised, performance-based service provided by PMS.
PM is not tax-free. Unlike mutual funds, which are considered pass-through entities under Section 10(23D) of the Income Tax Act and thus exempt from taxation, PMS investments are taxed directly in the investor’s hands. Gains from PMS are treated as normal capital gains from equity transactions. Taxation depends on factors like volume, frequency, intention, and holding period, determining whether they are classified as capital gains or business income.
Eligibility for PMS typically targets High Net Worth Individuals (HNIs). Investors must meet a minimum investment threshold, which, according to current SEBI regulations, is ₹50 lakh. This service is designed for those who prefer a personalised investment approach and can commit a substantial amount upfront. PMS offers tailored portfolio strategies managed by professional portfolio managers, catering to the specific investment objectives and risk tolerance of the investor.