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What is Portfolio Management?

An investor considering in securities is faced with the problem of choosing from among a large number of securities. His choice depends upon the risk return characteristics of individual securities. He would attempt to choose the most desirable securities and like to allocate his funds over this group of securities. Again he is faced with problem of deciding which securities to hold and how much to invest in each. The investor faces an infinite number of possible portfolios or groups of securities. The risk and return characteristics of portfolios differ from those of individual securities combining to form a portfolio. The investor tries to choose the optimal portfolio taking into consideration the risk return characteristics of all possible portfolios.

Portfolio Management Service (PMS): Overview


Portfolio Management Services (PMS) is a specialized service that offers a range of specialized investment strategies to capitalize on the opportunities in the market.

Investing requires knowledge, time, and the right mind-set. This is besides constant monitoring. PMS gives you professional managers who strategize to deliver you consistent returns keeping your risk appetite in mind. Every portfolio manager has a well-defined investment philosophy and strategy that acts as a guiding principle.

PMS relieves investor from all the administrative hassles of investments. You receive periodic reports on your portfolio performance and other aspects of your investments. Investments are tracked continuously to maximize returns.

In a PMS setup, your relationship manager defines your financial goals and advises you the right product mix. They give personalized service and ensure that you receive periodic updates and account performance reports.
There are broadly two types of PMS

1. Discretionary PMS Where the investment is at discretion of the fund manager & client has no intervention in the investment process. 2. Non-Discretionary PMS Under this service, 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 the trade is done by the portfolio manager.

The client may give a negative list of stocks in a discretionary PMS at the time of opening his account and the Fund Manager would ensure that those stocks are not bought in his portfolio. Majority of PMS providers in India offer Discretionary Services.

How do you benefit with PMS? Transparency: At most times the rationale behind your investments is a matter of concern. With PMS our Portfolio Managers will always keep you apprised of the reason behind investment decisions, plus you are always kept up-to-date on the allocation and distribution of your funds. Scientific Investment Decisions: PMS provides a scientific and disciplined basis for investing. Besides you have the flexibility of making investment decisions after speaking to our Research Team. Expertise: Traditional investment options do not provide a team of dedicated investment consultants. PMS will provide you exclusive access to the Research Desk and their Proprietary Research Reports.

Phases of Portfolio Management


Security Analysis Portfolio Analysis Portfolio Selection Portfolio Revision Portfolio Evaluation

Security Analysis
(a) Fundamental analysis: This analysis concentrates on the fundamental factors affecting the company such as EPS (Earning per share) of the company, the dividend payout ratio, competition faced by the company, market share, quality of management etc. (b) Technical analysis: The past movement in the prices of shares is studied to identify trends and patterns and then tries to predict the future price movement. Current
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market price is compared with the future predicted price to determine the mispricing. Technical analysis concentrates on price movements and ignores the fundamentals of the shares. (c) Efficient market hypothesis: This is comparatively more recent approach. This approach holds that market prices instantaneously and fully reflect all relevant available information. It means that the market prices will always be equal to the intrinsic value.

Portfolio Analysis

A portfolio is a group of securities held together as investment. It is an attempt to spread the risk allover. The return & risk of each portfolio has to be calculated mathematically and expressed quantitatively. Portfolio analysis phase of portfolio management consists of identifying the range of possible portfolios that can be constituted from a given set of securities and calculating their risk for further analysis.

Portfolio Selection
The goal of portfolio construction is to generate a portfolio that provides the highest returns at a given level of risk. Harry Markowitzh portfolio theory provides both the conceptual framework and the analytical tools for determining the optimal portfolio in a disciplined and objective way.

Portfolio Revision
The investor/portfolio manager has to constantly monitor the portfolio to ensure that it continues to be optimal. As the economy and financial markets are highly volatile dynamic changes take place almost daily. As time passes securities which were once attractive may cease to be so. New securities with anticipation of high returns and low risk may emerge.

Portfolio Evaluation
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Portfolio evaluation is the process, which is concerned with assessing the performance of the portfolio over a selected period of time in terms of return & risk. The evaluation provides the necessary feedback for better designing of portfolio the next time around.
How can investor invest in a Portfolio Management Services (PMS)?

There are two ways in which an investor can invest in a Portfolio Management Services: 1. Through Cheque payment 2. Through transferring existing shares held by the customer to the PMS account. The Value of the portfolio transferred should be above the minimum investment criteria. Beside this customer will need sign a few documents like PMS agreement with the provider, Power of Attorney agreement, New demat account opening format (even if investor has a demat account he is required to open a new one) and documents like PAN, address proof and Identity proofs are mandatory. NRIs can invest in a PMS. The NRI needs to open a PIS account for investing in PMS. The documentation required for an NRI, however, is different from a resident Indian. A checklist of documents is provided by each PMS provider.

Working of a Portfolio Management Services (PMS)


Each PMS account is unique and the valuation and portfolio of each account may differ from one another. There is no NAV for a PMS scheme; however the customer will get the valuation of his portfolio on a daily basis from the PMS provider. Each PMS account is unique from one another. Every PMS scheme has a model portfolio and all the investments for a particular investor are

done in the Portfolio Management Services on the basis of model portfolio of the scheme. However the portfolio may differ from investor to investor. This is because of:
1. 2. 3. 4. Entry of investors at different time. Difference in amount of investments by the investors Redemptions/additional purchase done by investor Market scenario Eg If the model portfolio has investment in Infosys, and the current view of the Fund Manager on Infosys is HOLD(and not BUY), a new investor may not have Infosys in his portfolio.

Under PMS schemes the fund manager interaction also takes place. The frequency depends on the size of the client portfolio and the Portfolio Management Services provider. Bigger the portfolio, frequency of interaction is more. Generally, the PMS provider arranges for fund manager interaction on a quarterly/half yearly basis.

Approach to PMS

Diversification of portfolio for containing non systematic risks in equity market. Active risk management Active review and rebalancing Expert management Best Retail Broking House and Broking House with the Largest Distribution Network award by DNB (2009) Strong risk management Experienced and strong fund management team Efficient and personalized client servicing No entry load on investment No lock in period for the investment. Flexibility to switch from one strategy to other(Charges applicable) Additional purchase facility Withdrawal facility for any amount above 500000/-.

Benefits at Angel

Investment in companies that have a strong competitive advantage over their peers Well laid-out investment philosophy Pro-active management of funds Dedicated Relationship Manager Quarterly newsletter from fund management team Committed parentage Minimum Investment:Rs.5Lacs and Multiples of Rs 1 thereof Mode- Either Cheque payment or Stock Transfer or combination thereof The Unicon PMS advantage
Choose from our range of PMS products that are designed to perform in any market based on your investment objectives

Professional Fund Management: The Schemes, duly approved by SEBI, are managed by a highly competent team comprising of portfolio managers and equity strategists, backed by a team of fundamental, technical and derivatives analysts Personalized Service: Proactive management of your funds by fund manager; backed by a Central Research team of Analysts and serviced by your dedicated Relationship Manager Timely Review & Reporting: Periodic review and rebalancing with timely performance reporting

Service Proposition

Online-Access to Portfolio Login Id and Password Monthly fund performance and fund manager s views on e-mails Quarterly performance report statement in a new form CA certified Profit & Loss account and Balance Sheet of investments Dedicated fund coordinator for fund-related queries Centralized team of service coordinators for hassle-free servicing Event-based interaction with fund management team Servicing from large network of branches across India

Change some things

Born in the late 1990s-early 2000s, portfolio management services, or PMS, became a favourite with investors in the bull market of 2005-2008. But soon after, it lost steam in the 2008-2009 market turmoil. Investment in PMS is still lagging the peak, although non-discretionary has picked up. According to data from the Securities and Exchange Board of India (Sebi), the assets under management (AUM) of discretionary PMS products have declined 40%, but the AUM for non-discretionary PMS products has increased 26% from December 2010 till date. Jayachandran/Mint
Having said that, discretionary assets include about Rs. 1.21 trillion of provident fund assets (which are not representative of private PMS); if we remove these assets, non-discretionary funds now constitute roughly 40% of discretionary AUM. Thus, despite shrinking market, the latter is still the larger pot.

Nitin Rakesh, managing direct and chief executive officer, Motilal Oswal Asset Management Co. (AMC) agrees that the industry has shrunk, but claims their AUM has grown in three years. Shashank Khade, executive vice-president, Kotak Securities Ltd, explained: Non-discretionary PMS has grown in a big way thanks to banks promoting it. Discretionary, on the other hand, is limited to a few companies; as and when the bull market returns, the pull factor will come back and this form of investing in equity will pick up again. He adds, it could take two to three years but these are cycles not new to the product. Given the changing dynamics of the industry and other options in the equity space, such as private equity, or PE, funds, real estate funds, structured products and mutual funds, or MFs, does it make sense to invest in PMS? Difference between discretionary and non-discretionary PMS Discretionary: In a discretionary product, the fund managers discretion in managing the portfolio is key. The investors account is run on the basis of a power of attorney and there is no further need to obtain the investors consent for intermediate transactions. However, since the stocks are in the investors name, they have full access. Non-discretionary: Here the relationship manager/advisor contacts the investor for each buy/sell decision. It is essentially an equity advisory service. These products, too, are based on a model portfolio, but the investor has a say in what stocks to retain. A number of distributors, including banks and private wealth managers, prefer non-discretionary products as these are considered more flexible. Only a handful of providers still run a substantial discretionary PMS business. Says Atul Singh, managing director and head (global wealth and investment management), India, DSP Merril Lynch Ltd, We prefer non-discretionary PMS for our clients on account of relatively higher transparency and ease of transaction. Advantages and caveats: If you are able to dedicate time to personal investments and look at the details frequently, non-discretionary PMS is a good product to have. If you want total professional management and focused portfolios, discretionary PMS makes more sense. Says Vishal Kapoor, general manager, wealth management, India & South Asia, Standard Chartered Bank, All formatswhether AMC or brokerage-based PMShave specific advantages that can work well for investors. Focused PMS providers have given some surprisingly good results recently. Says Khade, Managed accounts work best, where the overall portfolio is built within the discretionary format but involves the investors suggestions. This product works best for bigticket sizes and where customization is possible. Who should invest? The minimum ticket size for PMS is Rs. 5 lakh but lets be clear that PMS comes with risks intrinsic to equity investing and is best suited for high networth individuals (HNIs). Sebi

addressed the issue of small-ticket sizes in its concept paper released a few months ago, where it suggested that the minimum investment in a PMS should be Rs. 25 lakh and not Rs. 5 lakh. Choosing discretionary over non-discretionary would depend on your appetite for risk, need for customization and ability to manage investments closely. Does PMS still present an advantage? Investors are increasingly experimenting with products and rightly so. With inflation looming above 9%, one has to find ways of earning positive real returns. To keep portfolios focused, PMS providers typically have not more than three-four products. Says Sameer Kamdar, chief executive officer, ASK Investment Managers Pvt. Ltd, We dont believe in having too many products, a few basic products that are focused and perform well are enough. Another reason our funds have outperformed a number of diversified equity MFs is the low turnover ratio. Basically, your philosophy should match with the fund managers. How it compares with MFs: The closest competition to a PMS are equity MFs. In MFs, the product basket is much larger, giving the investor more choice and fees is comparatively lower. Experts argue that while both products are essentially long-term in nature, equity MFs are mass products and do not offer the advantage of customization and concentrated portfolios. In other words, if you want to invest in or avoid specific stocks or sectors you cant do that with an equity MF, not only because it is a mass product but also because there are restrictions on total sector exposures for diversified funds. Says Khade, PMS not only offers a focused portfolio but also the novelty of one-on-one interaction with the portfolio manager to understand the strategy and philosophy behind the investment better. This access is not there in an MF unless you are a large institutional investor. MFs work well where you want to invest in line with an established scheme objective; PMS works well in considering the risk appetite of individual investors for managing tailored portfolios. How it compares with structured notes or PE funds: In structured notes or PE funds, the riskreturn profile is different from a pure equity product and to that extent the allocation to these should be kept separate. Kapoor says, There is still merit in a focused long only equity strategy for the evolved HNI. PMS offers customized strategies which the investor can opt for and this can work well in uncertain and volatile markets, where opportunities may be more concentrated. PE funds, real estate funds and the like are better classified separately as alternate investments rather than equity; there is merit in these provided you understand and have the capability to take on risks. Market edge: Equity investors benefit the most when they buy during corrections (stocks are cheaper) and hold. Says Jayant Pai, vice-president, Parag Parikh Financial Services Ltd, a financial planning firm, We are looking at increasing clients exposure to PMS at this time but convincing them to invest in equity now is not easy.

Kapoor also feels that over time as technology and awareness have improved, increasingly HNIs recognize the value in professional help, which can be got through a PMS. PMS performance details are not publicly available, so you have to probe the provider for historical performance track record and comparison. In addition to this, keep in mind the reporting format, fees and portfolio turnover when choosing an appropriate discretionary. If you are more inclined to take up the non-discretionary product, along with performance and fess, consider the execution capabilities of the provider. For example, inter-linking of trading, banking and demat accounts, mode of payment and so on.