Portfolio management services explained: How PMS works, its types, costs, and who should invest

What is PMS?

Portfolio management services, or PMS, is a personalised and evolved investing service aimed primarily at high networth individuals. Since the Securities and Exchange Board of India (Sebi) has set a minimum ticket size of Rs.50 lakh for PMS portfolios, it is not feasible for retail investors.

Professional managers design and handle portfolios as per the profile, risk tolerance, and financial objectives of an individual. The service provider offers investment solutions and strategies to build a personalised portfolio comprising stocks and other assets to achieve the individual’s goals. The provider needs to be registered with the market regulator, Sebi, to ensure transparency and accountability to the investor.

PMS vs mutual funds

Mutual funds pool in investors’ money, which is then invested in different assets and is handled by professional fund managers. The investors hold the units representing the value of the underlying companies or assets in which the fund invests, thereby providing indirect ownership to the assets. In case of PMS, the investor has direct ownership of the underlying securities or assets in which the portfolio invests. These securities are held in dedicated Demat accounts owned by individuals. The PMS fees and charges are typically higher than those for mutual funds.


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Types of PMS

Portfolio management services in India are categorised into various types depending on the authority over the portfolio, and investment instruments selected.
Based on control: Depending on the degree of control exerted by the portfolio manager and the investor, Sebi defines three types of PMS—discretionary, nondiscretionary, and advisory.
Discretionary: The portfolio manager has complete control over decisions regarding the selection and transaction of assets as per the investment strategy decided with the investor.

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Non-discretionary: Here the manager offers expert advice, but the final decision-making rests with the investor.
Advisory: In this type of PMS, the manager makes the suggestions and the final decision as well as the execution is carried out by the investor.
Based on instruments: Though Sebi does not categorise on the basis of asset classes, for ease it is classified into equity, debt, hybrid and multi-asset PMS. Equity: This portfolio invests in listed and unlisted securities and equity-oriented mutual funds.
Debt: In this portfolio, the investments are in fixed income instruments like corporate bonds, government securities and debt mutual funds.
Hybrid: As the name suggests, the portfolio comprises both equity and debt instruments.
Multi-asset: In this case, the portfolio comprises traditional and alternative investing instruments, including stocks, debt, gold, real estate, real estate investment trusts (REITs), etc.