What are the different types of PMS?
In today's complex financial landscape, high net worth individuals are increasingly turning to Portfolio Management Services (PMS) to navigate the intricacies of wealth creation. But what exactly is PMS, and how can it benefit you? Let's dive deep into this sophisticated investment solution.
What is Portfolio Management Services (PMS)?
Portfolio Management Services are personalised investment solutions offered by SEBI-registered portfolio managers. These experts invest your capital across various asset classes, including stocks, bonds, and mutual funds, with the goal of generating superior returns and helping you achieve your financial objectives.
Key Features of PMS:
- Minimum investment: ₹50 lakh
- Tailored investment strategies
- Professional management
- Potential for higher returns
- Transparency and regular reporting
In this article, we'll delve into the various types of Portfolio Management Services available, categorised based on investment control and asset classes, to help you determine which option best suits your investment needs.
Types of Portfolio Management Services
PMS can be classified based on two key factors:
- Investment Control: Who holds the authority over decision-making and execution in your portfolio.
- Asset Class of Investments: The categories of investment instruments used, such as equities, debt securities, or a combination.
Types of PMS Based on Investment Control
The Securities and Exchange Board of India (SEBI) defines three types of PMS based on the degree of control exercised by the portfolio manager and the client:
- Discretionary Portfolio Management Services (DPMS)
- Non-Discretionary Portfolio Management Services (NDPMS)
- Advisory Portfolio Management Services
Each portfolio manager decides which type(s) of PMS to offer. For example, if Dezerv PMS has an investment strategy called 'Alpha Focus Strategy,' it may choose to offer it as a discretionary, non-discretionary, or advisory service—or any combination thereof.
Let's explore each type in detail.
1. Discretionary Portfolio Management Services (DPMS)
In Discretionary PMS, the portfolio manager independently manages your portfolio according to the agreed-upon investment strategy, without requiring your ongoing input or approval for individual transactions.
Key Features:
- Autonomy: After you sign the agreement and fund your demat account, the portfolio manager handles all investment decisions—what to buy or sell, when to enter or exit positions, etc.
- Real-Time Execution: The manager can act swiftly on market opportunities without waiting for client approval, potentially enhancing returns.
- Regulatory Oversight: Your assets remain in your name in your demat account, and portfolio managers are strictly regulated under the SEBI Portfolio Managers Regulations, 2020.
Who Should Opt for DPMS?
- Investors who prefer a hands-off approach.
- Those who trust professional expertise to navigate the markets on their behalf.
Benefits:
- Time Efficiency: Saves you the time and effort of managing investments.
- Expert Management: Leverages the portfolio manager's expertise and resources.
- Swift Action: Capitalizes on market movements promptly.
Considerations:
- Less Control: Limited say in individual investment decisions.
- Reliance on Manager's Skill: Returns depend heavily on the manager's competence.
2. Non-Discretionary Portfolio Management Services (NDPMS)
In Non-Discretionary PMS, the portfolio manager provides investment recommendations, but executing these requires your explicit approval.
Key Features:
- Collaborative Approach: The manager proposes investment ideas along with analysis; you decide whether to proceed.
- Client Autonomy: Retain control over investment decisions, aligning your portfolio with your preferences.
Who Should Opt for NDPMS?
- Investors who want to be actively involved in their portfolio management.
- Those with the time and expertise to evaluate investment recommendations.
Benefits:
- Control: Greater say in investment choices.
- Transparency: Full awareness of all transactions.
Considerations:
- Time Commitment: Requires active participation and timely responses.
- Potential Delays: May miss market opportunities if approvals are delayed.
3. Advisory Portfolio Management Services
In Advisory PMS, the portfolio manager's role is limited to providing investment advice. You handle all execution and administrative responsibilities.
Key Features:
- Maximum Control: Complete authority over all investment decisions and executions.
- Professional Guidance: Receive expert recommendations to inform your choices.
Who Should Opt for Advisory PMS?
- Investors with the knowledge and time to manage their portfolios but seeking professional insights.
- Those who prefer handling execution and administration themselves.
Benefits:
- Flexibility: Implement recommendations at your discretion.
- Cost Efficiency: Potentially lower fees since the manager isn't handling execution.
Considerations:
- Responsibility: You're accountable for trade execution, compliance, and record-keeping.
- Risk of Errors: Higher chance of mistakes without professional handling.
Types of PMS Based on Asset Classes
While SEBI doesn't officially categorize PMS based on asset classes, for clarity, we can consider the following types:
- Equity PMS
- Debt PMS
- Hybrid PMS
- Multi-Asset PMS
Let's examine each type.
1. Equity PMS
Equity PMS focuses primarily on investing in equity instruments like listed and unlisted shares and equity-oriented mutual funds.
Risk Profile: High risk due to stock market volatility.
Suitable For:
- Investors seeking long-term capital appreciation.
- Those with a higher risk tolerance.
2. Debt PMS
Debt PMS invests mainly in fixed-income securities such as corporate bonds, government securities, and debt mutual funds.
Risk Profile: Lower risk compared to Equity PMS but subject to interest rate and credit risks.
Suitable For:
- Investors seeking stable and predictable returns.
- Those aiming to preserve capital with moderate growth.
3. Hybrid PMS
Hybrid PMS combines investments in both equity and debt instruments to create a balanced portfolio.
Risk Profile: Moderate, depending on the equity-to-debt ratio.
Suitable For:
- Investors looking for a balance between growth and income.
- Those seeking diversification within a single portfolio.
4. Multi-Asset PMS
Multi-Asset PMS diversifies beyond traditional equity and debt by including assets like gold, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and other alternatives.
Risk Profile: Variable, depending on asset allocation and investment strategy.
Suitable For:
- Investors seeking broader diversification.
- Those interested in alternative assets to hedge against market volatility.
Choosing the Right PMS for You
Selecting the appropriate PMS depends on various factors:
- Risk tolerance
- Investment horizon
- Financial goals
- Desired level of involvement
- Tax considerations
It's crucial to thoroughly research and compare different PMS providers, their track records, and fee structures before making a decision.
The Dezerv Advantage
At Dezerv, we offer a range of PMS options tailored to meet diverse investor needs. Our team of experienced portfolio managers employs cutting-edge analytics and market insights to create strategies that aim to outperform the market while managing risk effectively.
Why Choose Dezerv PMS?
- Proven track record of generating alpha
- Transparent fee structure with no hidden charges
- Regular performance updates and insights
- Access to exclusive investment opportunities
- Personalized service and support
Conclusion
Portfolio Management Services offer a sophisticated approach to wealth management for high net worth individuals. By understanding the various types of PMS and aligning them with your financial goals, you can leverage professional expertise to navigate the complexities of the financial markets and potentially achieve superior returns.
Ready to take your investments to the next level? Explore Dezerv's Portfolio Management Services and embark on your journey to financial success.
Frequently Asked Questions (FAQs)
What is the difference between Discretionary and Non-Discretionary PMS?
In Discretionary PMS, the portfolio manager independently makes and executes investment decisions without needing your approval for each transaction. In Non-Discretionary PMS, the manager provides recommendations, but each trade requires your explicit consent. Learn more: Discretionary and Non-discretionary PMS
Who is eligible to invest in PMS in India?
Individuals or entities with a minimum investible surplus of ₹50 lakh are eligible to invest in PMS. This requirement positions PMS as a service primarily for high-net-worth individuals (HNIs) and institutional investors.
How are PMS providers regulated in India?
PMS providers are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI Portfolio Managers Regulations, 2020. These regulations mandate compliance with strict guidelines on operations, disclosures, and client asset protection.
Can I customize my PMS portfolio?
In Non-Discretionary and Advisory PMS, you have the flexibility to accept or reject investment recommendations, allowing for a customized portfolio. In Discretionary PMS, while the manager follows a predefined investment strategy, you can set initial guidelines and restrictions during the agreement phase.
