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Portfolio Management Services

What is PMS?

Portfolio management services are services provided by qualified financial professionals who invest the capital of high net worth individuals (HNIs) in exchange for a management fees. The minimum amount of investment for a PMS is rs 25 lacs which makes it an HNI service. PMS are very customised unlike mutual funds to cater to the particular needs of every individual investor.

The main elements of PMS

Asset allocation- This is a feature of PMS which helps an investor to choose a stable investment when his investment profile is more conservative. It helps the shareholders to gain the maximum returns by allowing them to invest in an amalgam of assets that have a low correlation with each other.

Diversification- It always remains uncertain to predict the winners and losers, so the most sensible approach is to create a list of investments that can provide wide-spread exposure within an asset class.

Rebalancing- In order to inform an investor about his risk/return profile, rebalancing is an essential method. Without the usage of this method, there are risks that the market movements could reveal the collection to greater risk and reduce the probabilities of yielding profits.

Historical data of PMS

The recent era of advanced IT has given birth to many financial portfolio management software that are used for the active operation of portfolio strategies through the help of available resources. At present time, PMS signify the US$2.4 billion market and these systems are defined as IT-enabled systems. Their use has been significant in managing the portfolios of distant clients. These management systems are known for giving an essential to the companies which range from mutual funds, hedge funds, institutional accounts to insurance.

PMS has increased over the past many years. Investment and asset management firms spend more on these solutions.

Types of PMS

PMS is further bifurcated into four categories- Active Management, Passive Management Service, Discretionary Management Services and Non-Discretionary Management Services.

Active Portfolio Management

The role of an active portfolio manager is to help an investor in gaining better returns as per market's indication. He buys stocks when they are underrated and sells them when their prices rise above the normal price. It comprises a quantitative analysis of companies that control the cost of shares in respect to the market potential. While using this method, an active manager relies more on ratios instead of a market hypothesis.

Passive Portfolio Management

Often recalled as the process of indexing, analysing and investing the investor's fund in the market index like Dow Jones. Its services are opposite to that of active management. Investors who apply to this theory believe in the efficient market hypothesis. The benefit of using this management service is that it aims at reflecting the company's details in the price of the stock. It allows passive managers to experiment in index funds that have low income but good long-term value. In addition to all these things, it also aids in investing the cash in percentage wise proportion to the market capitalization.

Discretionary Portfolio Management

It is the most advantageous portfolio management service as it allows the manager to make decisions on behalf of the investor. Since the manager knows the goals and objectives of an investor, it becomes easy for him to strategize his plans.

Non-Discretionary Portfolio Management

This type of portfolio service prohibits the manager to act on behalf of the investor. He works as a financial advisor and advises the investor about the actual time to buy and sell shares.

The difference between PMS and Mutual Fund

In PMS, fund manager authorizes his power to operate the money while the investor holds the stock in the demat account which is owned by him.

Pros and Cons of Portfolio Management Service

People who invest in the Portfolio Management Service embrace many fruitful benefits like transparent holding, the possibility of a high return and fully customized to the needs.

Transparent holding

PMS is regulated by SEBI, it guarantees transparency to every shareholder and provides a clear indication to the shareholder about shares. The role of PMS providers is said to be essential as they reveal a lot about the company's financial decisions to the investors. Therefore the transparency for PMS shareholders gets increases

High returns

Funds generated from PMS tend to give higher returns than any mutual funds. The first reason is that PMS providers dedicate more time and energy in searching for the quality stocks and on holding them for a quite long time. Secondly, PMS is known to be more flexible, structured in comparison to mutual funds and thus generate higher monetary returns.


In PMS, the shareholders subscribe the entire units of the pre-created portfolio which make PMS more customised. It also enhances the portfolio of a shareholder by providing a mass of online add-ons like portfolio access, portfolio analytics, and content. Thus, the probability of getting more value to the portfolio gets increases.


The biggest disadvantage of PMS is that it incurs high expense cost to the investors. If we compare the expense ratio in the case of equity mutual fund it is near around (1.7-2.25%) which is slightly low in comparison to PMS (3.5% to 5.5%). In case of any financial crises, the high expense will take away some amount of money from your returns.

Tax Inefficiency

In PMS tax is charged at each at each interval while investment is made in more than one year. It happens because PMS is considered as a portfolio which is owned in your demat account.