|
| |
Portfolio
Management Services – An emerging investment
option |
| |
|
| |
It’s
hard to make money but it’s harder to preserve
it. If you earn money but don’t invest it
properly, inflation will erode your wealth. To
preserve it, your funds should at least earn a
rate of return that can beat the inflation rate.
Everyone wants to maximize their returns on investment
without capital erosion.
There are many different investment avenues such
as fixed deposits, fixed income securities, equity,
commodities, and mutual funds. Different products
have different risks associated with them and
different factors affecting their returns. To
deal in each product you need very particular
sets of skills and knowledge. Equities and commodities
as asset classes require constant monitoring.
A person who has earned money may not have required
the knowledge, time or inclination to manage it.
If you are someone who falls into this category,
PMS is good option for you.
As clients go, portfolio management services (PMS)
is best suitable for those who have a large surplus
to invest, as the minimum portfolio size accepted
by portfolio managers range between 25 lakhs to
5 crore. It helps if clients are inclined towards
equity and commodity markets as these offer great
returns and prove portfolio managers with the
scope to create value out of the investments.
And finally, the investments should have a reasonably
long time horizon to reap full benefits of PMS.
|
| |
|
| |
So
if you don’t have much surplus and you are
an equity-averse investor, you can opt for the
services of a financial planner or an advisor
rather than going for a PMS.
Portfolio managers first analyze your risk appetite
and identify individuals goals and objectives.
They will then create a basket of stock, bonds
and mutual funds to fit into these personal investment
goals and objectives. They provide different types
of portfolios based on different strategies. A
few portfolio managers provide standardized portfolios
for sums as small as 5 – 10 lakh, but for
customized portfolios they take a minimum investment
size of 25-50 lakh. Portfolio managers also accept
your existing securities, bonds and mutual fund
holdings along with cash which can be then be
revamped according to your goal and preferences.
|
| |
|
| |
Benefits: |
| |
 |
Asset allocation:
The most important and crucial part of financial
planning is your asset allocation. You may
know the sectors you want to invest your
money but you may not have an idea of how
much of your surplus you should invest in
each sector. PMS ensures that your asset
allocations are tailor-made for you based
on your investment objectives and risk appetite.
|
| |
|
|
Professional management:
your funds in PMS are managed by a professional
who has the required set of skills, knowledge
and experience and therefore you don’t
need to worry about the ups and downs of
the market. You can relax and concentrate
on your other commitments as your funds
are in safe hands. |
| |
|
|
Risk control: Portfolio
managers follow some well defined investment
philosophies and strategies based on intense
research. They also use some highly specialized
software that helps them in achieving better
returns |
| |
|
|
Timing: As they are
backed by intense research, portfolio managers
can switch your portfolio if they perceive
a big risk in a particular asset class and
thus preserve the value of your portfolio.
|
| |
|
|
Convenience & transparency:
once you handover your money to portfolio
managers you are free of all the administrative
hassles such as dealing with brokers and
tracking the markets, as all will be taken
care of by the portfolio managers. They
also provide periodic performance reports.
Some portfolio managers also give you online
access to your portfolio details such as
performance statements, portfolio holding
reports, transaction statements, capital
gains/loss, providing a high level of transparency.
|
| |
|
|
Flexibility: If you
compare PMS to mutual funds investment,
PMS provides greater flexibility than mutual
funds as they are not tied to SEBI regulations
and can freely use derivatives instruments
to increase your returns, or invest in any
sector according to requirements. It also
provides flexibility to the investor - if
an investor wants more weight age given
to a particular sector, he/she can ask the
portfolio manager to do that. This is not
possible in case of mutual fund investments.
|
| |
|
|
Personal relationship
manager: Portfolio managers provide you
a designated relationship manager who will
help you understand your financial objectives
and will advise you the right investment
strategy and will provide you periodic updates.
|
|
| |
|
| |
Portfolio
managers usually provide two types of PMS - Discretionary
and non discretionary. Discretionary portfolio
management clients cannot make decisions for the
management on his/her portfolio. The portfolio
manager will independently take decisions according
to the client’s recorded objectives. Non-discretionary
portfolio management allows, the client to be
actively involved in the decision-making concerning
the management of the portfolio.
Lastly but most importantly, how do you pay for
the PMS?
Mostly, portfolio managers charge either a fixed
fee based on the value of your portfolio - around
2-2.5 %. Or they may ask for performance-linked
management fee which will then include a fixed
fee of 0.5-1.5% plus a share of your profit -
usually 15-20% of that earned over and above the
minimum rate of return. Portfolio managers allow
their clients to choose between the two.
|
| |
|
|
