Portfolio Management Schemes: Tailored Investment Strategies for High-Net-Worth Individuals

Feb 14


Ramalingam K

Ramalingam K

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Portfolio Management Schemes (PMS) offer a unique investment opportunity for individuals with significant capital, providing a tailored approach to stock market investment. Unlike mutual funds, PMS allows for a more personalized and concentrated portfolio, managed by seasoned professionals. This article delves into the nuances of PMS, comparing it with direct stock investments and mutual funds, and provides guidance on selecting the best PMS provider.

Understanding Portfolio Management Schemes

Portfolio Management Schemes are specialized investment vehicles designed for lump-sum investments. They offer investors the chance to either inject fresh capital or transfer their existing share portfolios to a PMS provider. The portfolio manager then reconstructs the portfolio in alignment with their investment philosophy and strategy.

Upon opening a PMS account,Portfolio Management Schemes: Tailored Investment Strategies for High-Net-Worth Individuals Articles clients receive web access to monitor their investments, track performance, and generate various reports such as investment summaries and capital gain statements. This convenience alleviates the administrative burdens typically associated with investment management.

PMS Versus Direct Stock Market Investment

Investing directly in the stock market requires expertise, a strategic mindset, time, and constant vigilance. For individual investors, meeting these requirements can be challenging. PMS, managed by experienced professionals, saves investors time and effort, making it a wise choice for those who prefer not to manage their investments independently.

PMS Versus Mutual Funds

While mutual funds are a popular investment choice and should be part of one's equity portfolio, they are inherently conservative due to SEBI regulations that impose restrictions on individual stock and sector exposure. In contrast, PMS can invest in a more concentrated selection of 15 to 20 stocks, allowing for a more aggressive and flexible investment strategy. This is particularly evident when comparing the management of a ₹25 lakh PMS portfolio to a ₹2000 crore mutual fund portfolio.

PMS also offers greater flexibility in terms of cash allocation based on market conditions. Investors might consider allocating the conservative portion of their equity investments to mutual funds and the more aggressive portion to PMS.

Selecting the Best PMS Provider

Choosing a PMS provider can be daunting, given the plethora of options available. Here are some factors to consider:

Performance Benchmarks

Past performance should not be the sole criterion. Analyzing various PMS providers based on past performance, risk-adjusted returns, and consistency can aid in making an informed decision.

Minimum Investment Requirements

It is advisable to opt for PMS providers with a minimum investment threshold of ₹25 lakh or more. This ensures that the portfolio is managed by top-level managers rather than junior analysts. For investments below ₹25 lakh, mutual funds may be a more suitable option.

Avoiding Conflicts of Interest

PMS run by stockbroking companies may have inherent conflicts of interest, as their primary business is to generate commission income through share transactions. In contrast, investment management companies focus on managing investments to earn management fees, presenting no conflict of interest. Therefore, PMS offered by investment management companies are generally preferable.

The Role of Professional Financial Planners

Professional financial advisors or planners can provide valuable insights into various PMS offerings, guiding investors to the right scheme based on their needs. They also monitor performance and advise on potential switches between PMS providers when necessary.

ESOPs and Portfolio Management Scheme

For employees with ESOPs, it is risky to have both employment and investment income tied to the same company's performance. Transferring ESOPs to a PMS can diversify the investment portfolio, reducing risk.

PMS is particularly suitable for investors who:

  • Have a share portfolio but find it difficult to manage.
  • Seek alternatives to mutual funds.
  • Possess sizable ESOPs.

The author, Ramalingam K, is an MBA (Finance) and Certified Financial Planner, the Founder and Director of Holistic Investment Planners, a firm offering Financial Planning and Wealth Management services. He can be reached at ramalingam@holisticinvestment.in.