PORTFOLIO MANAGEMENT SERVICES(PMS)

Prepared & Presented by Suresh Ch. Panda( MBA, Finance)

What is Portfolio Management Services (PMS)?

Portfolio Management Services (PMS) is an investment portfolio in stocks, fixed income, debt, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives.

 Who can offer PMS?

PMS can be offered only by entities having specific SEBI registration for rendering portfolio management services. Currently in India PMS is offered primarily by asset management companies (AMCs) and brokerage houses.

 Investment Limit ?
As per SEBI guidelines, the minimum investment required to open a PMS account is Rs 5 lacs. ( Changed to Rs. 25 lacs from Feb. 2013.) However, different providers have different minimum balance requirement for different products. 1. Birla AMC PMS- Rs 25 lacs 2.HSBC AMCPMS-Rs . 50 lacs 3. Reliance AMC PMS- Rs 1 core

Objectives of Portfolio Management

1. Stable Current Return:Once investment safety is guaranteed, the portfolio should yield a steady current income. The current returns should at least match the opportunity cost of the funds of the investor.

2. Marketability:A good portfolio consists of investment, which can be marketed without difficulty. If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another.

CONTD
3. Tax Planning:Since taxation is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter. The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well.

4. Appreciation in the value of capital:A good portfolio should appreciate in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to appreciate in real value after adjusting for inflation.

CONTD
5. Liquidity:The portfolio should ensure that there are enough funds available at short notice to take care of the investors liquidity requirements. It is desirable to keep a line of credit from a bank for use in case it becomes necessary to participate in right issues, or for any other personal needs.

6. Safety of the investment:Investment safety or minimization of risks is one of the important objectives. There are many types of risks, which are associated with investment in equity stocks, including super stocks. You can try and minimize the overall risk or bring it to an acceptable level by developing a balanced and efficient portfolio. A good portfolio of growth stocks satisfies the entire objectives outline above.

TYPES OF PORTFOLIO MANAGEMENT SERVICES

TYPES OF PORTFOLIO MANAGEMENT

Discretionary

Non Discretionary

Advisory

CONTD.
1} Discretionary: Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager. 2} Non Discretionary: Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the Investor. However the execution of trade is done by the portfolio manager.

CONTD
3}Advisory: Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the execution of the investment decisions rest solely with the Investor.
Note: In India majority of PMS providers offer Discretionary Services.

How can an investor innvest in a PMS?

By cheque paymnent or through transfering existing shares by the yby the customer to the PMS account. Documents Required PMS agreement with the provider. Power of Attorney agreement. New Demat account opening format. (even if he has a demat account). PAN Card, Address proof, Identity proof etc.

PMS CHARGES
1. 2. 3. Decided at the time of investment and vetted by the customer. Entry Load:- may have entry load of 3%. Management Charges:- Vary from 1% to 3 % depending upon the provider. Charged quarterly basis from the PMS account. Profit Sharing:- Some schemes have profit sharing arrangement in addition to fixed charges. Other Charges Custodian fee. Demat account opening charged. Audit charges. Transaction Brokerage etc.

Working of PMS
Each PMS account is unique and the valuation and portfolio of each account differ from one another. There is no NAV for a PMS scheme. However customer will get the valuation of his portfolio on a daily/weekly/fortnightly basis from the provider. Each transaction will be considered as independent trade and capital gain will be applicable on each depending upon whether the relevant stock was held short term or long term as per the prevailing tax laws.

Recapitulation
PMS is an investment portfolio in different finacial instruments. Offered by registered entities like AMC & Brokerage houses in India. Minimum investment is 25 lacs & no maximum limit. Investment objectives-Liquidity, Safety, Stable returns, Tax planning etc. Opening of a PMS Account by cheque payment or transferring securities. PMS charges are mutually agreed. Unlike Mutual funds where you own units in PMS you own individual securities. Freedom & flexibility to tailor your portfolio to address your preferences & financial goals..