How Portfolio Management Services Work

Portfolio management service (PMS) is an investment vehicle under which an investor’s portfolio is managed by a professional fund manager. The fund manager is usually a market expert or veteran in return for a fee. Portfolio management services define their investment universe and investment strategy in prior so investors can decide if the mandate suits their needs and accordingly invest.


Who can participate in a PMS scheme?

Since the minimum investment in a PMS as stipulated by SEBI is Rs 50,00,000 – investors who have the required investable amount are eligible investors. An investor should also keep in mind the duration for which he is looking to stay invested. Equity PMS is suited for investors who are willing to stay invested for at least 4-5 years. It is suited for those whose long-term goals are capital appreciation and wealth creation as opposed to regular income generation. A debt PMS would suit an investor with shorter-term goals and the need for regular liquidity.


How PMS schemes operate

A separate Demat account is created for investors opting for a PMS scheme. All investments are made in the investor’s name only. This attributes a high degree of ownership and transparency to the PMS model. Dividends or any other corporate actions are usually re-invested in the account and do not hit the client’s bank account.

Under a discretionary PMS model, there is an agreement in place between the portfolio manager and client which allows the portfolio manager to make investments on the investor’s behalf. Investors do not have access to facilitate transactions in this account.


SEBI regulations

Since PMS investing is niche and involves high ticket size investments, there are specific regulations that oversee the operations of a PMS. The regulations dictate that the portfolio manager must disclose the entire scope of services, the fund strategy, and other essential details like benchmark, exit loads and fees to the investor prior to their investment. A portfolio manager is required to furnish performance reports to the client at least once in 3 months.

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