Portfolio Management Service #NewbieInvestor

Are you a newbie to the world of financial management and want answers to the basic questions on Portfolio Management Service? Here you go!

What is Portfolio Management Service (PMS)?

A PMS is essentially provided by licensed stockbroking companies where money managers of PMS, that are experts in the stock market, offer services to their clients. They take the entire responsibility of managing their portfolio. Their services include:
– Create a basket of stocks basis sectors/market cap, as per the expertise of the fund manager.
– Assign weightage/recommend changes basis there analysis. 
– Track the market and invest client’s money for wealth generation.  

What is the eligibility to invest in PMS?

– Investors must be an individual or a non-Individuals such as HUFs, partnerships firms, sole proprietorship firms, and Body Corporate.
– As per SEBI guidelines, the portfolio manager is required to accept a minimum of INR 50 Lacs or securities having a minimum worth of INR 50 Lacs from a client.
– A Non-Resident Indians (NRI) subjected to RBI approval – You need the following 3 accounts to invest in PMS:

1. A PIS Bank Account (a normal bank account where your money resides), 
2. A Trading Account (a share broker account which allows you to trade in equity, F&O, etc. segments) and, 
3. A Demat account (it holds the equity shares purchased by you) Note: The rights to all these accounts will be with the Portfolio Manager (person responsible for handling your account)  

Who is an ideal PMS Investor?

The Investment solutions provided by PMS cater to a niche segment of clients. These clients can be:
– Individuals or Institutions entities with a high net worth
– Investors looking to invest in asset classes like equity, fixed income, structured products, etc 
– Investors who desire personalized investment solutions  – Investors who desire long-term wealth creation  – Investors who appreciate a high level of service  

What fee can a portfolio manager charge from its clients?

SEBI (Portfolio Managers) Regulations, 2020 provide that the Portfolio Manager shall charge a fee as per the agreement with the client for rendering portfolio management services. However, no upfront fees shall be charged by the Portfolio Manager directly or indirectly to the clients. Other charges include:
– Management Fees
– Profit-Sharing % Charges
– Audit Charges
– Custodian Charges
– Transaction Brokerage Charges
– Demat Account Opening Charges  

As a PMS investor, what you must know?

Apart from cash, the client can also hand over an existing portfolio of stocks, bonds, or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However, the Portfolio Manager may at his own sole discretion sell the said existing securities in favor of fresh investments. With the benefits of PMS, comes the responsibility of decision making. You need to be more involved and proactive. While evaluating a PMS provider, understand the fund’s philosophy before you make a call. Exercise due diligence, choose a good company with a considerably long track record, fund management style, and philosophy.  

Is there a lock-in for PMS?

Portfolio Managers cannot impose a lock-in on the investment of their clients. However, a Portfolio Manager can charge applicable exit fees from the client for an early exit, as laid down in the agreement subject to the provision of SEBI Circular.