Portfolio Management Service
Portfolio Management Service (PMS): An Overview
Portfolio Management Services (PMS) is a specialized service which offers a range of specialized investment strategies so as to capitalize on the opportunities present in the market.
Any form of investing requires time, knowledge, and the right mind-set. It also requires constant monitoring. Under PMS, professional managers strategize to deliver consistent returns while keeping in mind your risk appetite. Every portfolio manager is skilled and has a well-defined investment philosophy and a strategy which acts as a guiding principle.
PMS relieves an investor from all the administrative hassles that occur while investing. One receives periodic reports on his/her portfolio performance as well as on other aspects of investments. Investments are tracked on a continuous basis to maximize returns.
Incase of a PMS setup, the relationship manager defines the financial goals and advises the right product mix. Personalized service is given that ensures that you receive periodic updates and also the account performance reports
Portfolio managers manage stocks, bonds, and mutual funds of their clients considering their personal investment goals as well as their risk preferences.
Advantages of choosing PMS instead of Mutual Funds:
While comparing Portfolio management service (PMS) over mutual funds services it is found that portfolio managers offer certain services which are better than the standardized services offered by mutual funds managers. These services are as follows:
- Asset Allocation: PMS helps in allocation of savings of a client in stocks, bonds or equity funds. The plan is tailor made and is designed after detailed analysis of the client's saving pattern, investment goals, and his/her risk taking capacity.
- Timing: Portfolio management service helps in allocating the right amount of money in right type of savings plan at the right time. Portfolio managers provide their expert advice to their client as to when to invest in equities or bonds and when to take money out of a particular savings plan. They analyze the market trends and advice their clients regarding the amount of cash to be taken out during big risks in stock market.
- Flexibility: Portfolio managers plan investments of clients according to their needs and preferences. At times, portfolio managers can invest client's money according to their own preferences since they know the market better than client. It is the client's duty to provide his portfolio manager a level of flexibility so that he is able to manage the investments with full efficiency and effectiveness
Unlike mutual funds, portfolio managers do not need to follow any rigid rules of investing a particular sum of money in a particular investment mode. Mutual fund managers require to work according to regulations set up by financial authorities of their country. For example in India, they need to follow rules set up by SEBI.
Services & Strategies provided in Portfolio Management are:
- Portfolio managers work as a personal relationship manager with whom the client can interact at any time as per his preference.
- To discuss any topics regarding money or saving, the client can interact with his portfolio manager on a monthly basis.
- The client can also discuss on any major changes that he wants in his asset allocation or investment strategies.
- Portfolio management service (PMS) handles all types of administrative work such as opening a new bank account or dealing with a financial settlement or depository transaction.
- For online Portfolio management service (PMS), the client receives a User-ID and Password that helps him in getting online access to his portfolio details as and when he wants.
- Portfolio management service (PMS) also helps tax planning and tax management of client based on detailed statement of transactions in his portfolio.
The Payment Criteria:
There are 2 types of payment criteria offered by portfolio managers to their clients, such as:
- Fixed-linked management fee
- Performance-linked management fee
In the fixed-link management fee, client usually pays 2-2.5% of the portfolio value calculated on basis of weighted average method.
In the performance-linked management fee, client pays a flat fee ranging from 0.5-1.5% based on performance of portfolio managers. Profits are calculated on basis of 'high watermarking' concept. This means that the client pays fees only on basis of positive returns on his investment.
In addition to above criteria, the manager also charges around 15-20% of the total profit earned that is by the client. Portfolio managers can also claim separate charges gained from custodial services, brokerage, and tax payments.
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