When it comes to investing, there are multiple avenues an investor can consider. Most retail investors gravitate towards mutual funds as they help diversify investments in a professional and systematic manner. However, when it comes to India’s affluent investors who are searching for more nuanced and evolved investment options, mutual funds might not necessarily make the cut. In such a scenario, Portfolio Management Services (PMS) provides a sophisticated solution by offering professionally managed portfolios that have been carefully curated.
PMS caters to an exclusive clientele who are willing to invest a minimum of Rs. 50 lakh. Ultra-high-net-worth investors (UHNI) and high-net-worth investors (HNI) who lack the time, resources, or expertise to properly manage their investments, can have their wealth professionally managed by an experienced fund manager following a disciplined investment strategy tailored to the client’s goals and risk tolerance.
While mutual funds are a popular investment vehicle in India, they operate under strict regulations that limit their flexibility. A PMS, on the other hand, offers far greater flexibility and customization while still being regulated. This makes PMS especially appealing for certain types of investors:
The time deficient: Successful entrepreneurs, corporate executives, and other professionals often have incredibly demanding careers that leave little time for managing their investment portfolio. Rather than trying to squeeze in research and stock investing in their hectic schedule, they can entrust their money to a dedicated PMS manager.
The resource deficient: Hiring an in-house team of analysts, advisors, and investment managers requires significant resources and infrastructure that may not be feasible for many individual investors. A PMS provides access to institutional-grade research and capabilities.
The know-how deficient: Different people will have different specializations and where and how to invest may not be a domain of expertise for all. Seasoned PMS fund managers can apply their specialized financial knowledge to grow the client’s wealth.
The discipline deficient: Investing successfully requires sticking to a long-term plan and having a holistic (comprehensive) view of the portfolio rather than reacting emotionally to market movements. A PMS manager follows an objective and disciplined strategy designed to minimize behavioral biases.
The cash surplus: PMS is suited for individuals or institutions possessing a substantial investible surplus – typically Rs.50 lakh or more, have a high-risk appetite have a better understanding of market risk.
Portfolio Management Service the F.I.R.S.T choice:
Flexibility: PMS managers use a wide range of asset classes and investment strategies and temporarily increase cash allocations during periods of extended volatility. Investors can choose from various fee structures.
Institutionalized: PMS employ research-backed portfolio construction following consistent, time-tested processes aimed at long-term wealth creation rather than trying to time the market. PMS offers diversified portfolios with varying risk profiles, investment objectives and wealth creation strategies.
Regulated: The Securities and Exchange Board of India (SEBI) has established comprehensive guidelines and regulations to govern PMS in India. Safeguarding investor interests is a priority, and only those entities authorized by SEBI can offer PMS services to clients. Thus, robust regulatory framework makes PMS a secure and investor-friendly investment avenue.
Sophisticated: PMS are gaining popularity among affluent Indians due to the aforementioned personalised service. They offer comprehensive, and highly specialized strategies to a discerning clientele seeking not just financial guidance, but a holistic approach to managing and growing their wealth.
Transparent: PMS offers direct ownership of securities in investors’ portfolio, providing transparency. Investors have full visibility of their PMS holdings and transactions, with regular reporting. They also get segregated account structures including annual audited tax statements. This helps investors to be updated on all the investments made by the manager.
Outperforming the benchmarks, mutual funds, and gold: A study by PMS bazaar comparing the performance of PMS and MF against their benchmarks across various categories over varying timeframe showed that the number of PMS strategies outperforming their benchmark appears greater than number of equity mutual fund schemes outperforming their benchmark, over medium and longer holding periods. Also, in the past 10 years, the average return of 58 PMS investment approaches (that have completed 10 years) stood at 18.84%, outperforming Nifty50 TRI and gold. Of course, past returns don’t guarantee future results and PMS performance can vary widely between providers.
According to a recent research by Avendus, the number of HNIs (individuals with investible surplus of more than Rs 5 crore) in India stood at 8 lakh as of 2022. This number is expected to grow at a CAGR of 16%, taking the HNI population in India to an estimated 10 lakh this year. With only around 400 registered PMS providers in India, the ratio of HNIs to portfolio managers is a staggeringly low 2,500:1.
In India, there are only around 400 registered PMS portfolio managers, meaning these personalized investment management solutions remain relatively exclusive. A carefully selected PMS may offer India’s affluent investors the best long-term mix of active management, flexibility, and sophistication to increase their nest egg.
