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What is Portfolio Management Service?

Portfolio Management Service (PMS) is a professional financial service where skilled portfolio managers and stock market professionals manage your equity portfolio with the assistance of a research team. Many investors have equity portfolios in their Demat Account but managing them can be a challenge. PMS is a systematic approach to maximise returns while minimising the risk factor on your investments. It enables you to make sound decisions that are supported by extensive research and factual data without lifting a finger. Additionally, it better prepares you to deal with market adversity.

What are the types of portfolio management services?

Active Portfolio Management

The portfolio manager's primary goal is to maximise returns. In the Active Portfolio Management method, the portfolio manager attempts to reduce the risk of your investments by diversifying them across asset classes, industries, and businesses. When compared to the passive style, this results in a higher turnover.

Passive Portfolio Management

This method focuses on fixed profiles that are in line with the current market trend. In this case, portfolio managers prefer to invest in index funds which grow passively over time with minimal intervention. They have a low turnover but offer reasonably good long-term returns.

Discretionary Portfolio Management

The portfolio manager is entrusted with managing a specific portfolio in this method. Based on your objectives, risk tolerance, and investment duration, the manager selects an appropriate strategy that they believe is best suited to your portfolio. For example, portfolio managers may recommend equity-oriented funds to a risk-taking investor and debt-oriented funds to a risk-averse investor.

Non-Discretionary Portfolio Management

In this method, the portfolio managers advise you on investing, but the final decision is yours. Once you give the go-ahead, the portfolio managers take the appropriate action on your behalf.

What features to look for in a PMS?

  • PMSes have model portfolios that they furnish when soliciting clients. The PMS model portfolio may be assessed fora track record of company selection and overall performance against the market index.

  • The performance of the portfolio is solely dependent on the manager’s ability to outperform the market. Therefore, a crucial aspect of selecting PMS is conducting due diligence of the portfolio manager. A portfolio manager’s educational background and experience ultimately point to the competency and expertise that they bring to the fund.

  • The investment strategy is another parameter that can give PMS an upper hand over other schemes available in the market. It makes sense for the investor to understand the strategy before committing funds. If the strategies are complex, the viability of such strategies over the long-term should be outlined transparently.

  • The fee arrangement of the PMS based on the performance of the manager should serve a win-win situation. The profit-sharing of returns is typically 20 percent. Fees charged for the management of the fund should not be over industry standards, which is in the range of 1 to 3 percent. A hurdle rate clause ensures profit sharing with the manager only if the performance of the fund beats the minimum required hurdle rate.

  • Customer support and transparency are valued by investors, especially for discretionary portfolios. PMSes appraising portfolio performance frequently benefits from customer engagement and establish a long-standing agreement.

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