Portfolio Management Services (PMS)

• Summary
• Portfolio Management Services (PMS) is a professional investment service that manages an individual portfolio based on agreed objectives and an investment approach.
• PMS offers discretionary, non-discretionary and advisory models, giving investors different levels of involvement in decisions.
• The service involves management or performance-based fees, brokerage, operating expenses and applicable exit charges.
• Investors should assess the portfolio manager, investment strategy, costs, risks and disclosures before entering into a PMS arrangement.

What is Portfolio Management Services (PMS)?

Portfolio Management Services (PMS) is a professional investment service in which a SEBI-registered portfolio manager manages or advises on a client’s portfolio under an agreed investment approach.

Depending on the type of portfolio management, the manager may make investment decisions independently, execute decisions based on the client’s instructions or provide investment advice.

For most PMS clients, the minimum investment is ₹50 lakh in funds or securities. The level of investor involvement varies across discretionary, non-discretionary and advisory PMS.

How Portfolio Management Services Work

The PMS broad process includes:

1. Selecting a PMS provider: Investors can check whether the portfolio manager is registered with the Securities and Exchange Board of India (SEBI) and examine the investment approaches available.
2. Choosing an investment approach: The approach sets out the investment objective, types of securities, allocation strategy, benchmark, indicative investment period and associated risks. 
3. Opening the PMS account: The investor completes the required documentation and provides at least ₹50 lakh in funds or securities.
4. Portfolio management: Depending on the type of PMS, the portfolio manager may make investment decisions independently, act on the investor’s instructions or provide investment advice.
5. Monitoring and reporting: Investors receive periodic information about portfolio performance, holdings, fees and other relevant details.

Where to Get a PMS Scheme?

Investors can access PMS directly from a SEBI-registered portfolio manager or through wealth management firms and authorised distributors. From January 1, 2025, distributors of PMS  are also required to register with the Association of Portfolio Managers in India (APMI) under SEBI’s framework for collective oversight of PMS distributors, supporting greater governance and transparency.

SEBI-mandated direct plans allow investors to approach PMS providers without an intermediary, which may reduce associated costs. Those seeking assistance can use wealth management firms or distributors to understand different providers, investment styles and track records.

India has 535 registered PMS providers, each with different investment approaches and fee structures, including profit-sharing arrangements and hurdle rates. Given these differences, investors may also consult a financial advisor when assessing which PMS aligns with their investment objectives.

Opening a PMS account

Opening a PMS account involves completing Know Your Customer (KYC), documentation and account verification before portfolio management begins. The process generally includes:

1. Complete KYC: Submit PAN, identity, address and other required details.
2. Set up accounts: Link the required demat and verified bank account for holding or transferring investments.
3. Review disclosures: Check the portfolio manager’s fees, risks, performance and other disclosures.
4. Sign the agreement: Review the services, terms, fees and responsibilities before signing the PMS agreement.
5. Check the power of attorney: Understand its scope before providing authorisation, where applicable.
6. Complete verification: Once documentation and verification are completed, the PMS account can be activated.

Charges of a PMS account

PMS charges can vary significantly but typically include a mix of fixed and performance-based fees. Here’s a breakdown of the common charges:

Charge	What It Means
Management fee	Fee charged for managing the portfolio, as agreed in the client agreement.
Performance fee	A fee linked to portfolio performance, where applicable.
Brokerage	Charged at actuals for applicable transactions.
Operating expenses	Other permitted expenses, capped at 0.50% of average daily AUM annually, excluding brokerage.
Exit load	Up to 3% in year one, 2% in year two and 1% in year three. No exit load after three years.

Types of Portfolio Management Services

PMS are classified into different types based on investment objectives, management styles, and investor preferences. Here are the most common types:

1. Discretionary PMS 

In this type, the portfolio manager has full authority to make investment decisions on behalf of the client. The investor entrusts the manager to handle stock selection, timing, and execution without prior approval for each trade.
Ideal for: Investors who want a hands-off approach and trust the fund manager’s expertise.

2. Non-Discretionary PMS

Here, the portfolio manager offers recommendations, but the final investment decision lies with the client. The manager executes trades only after receiving the client’s consent.
Ideal for: Investors who want to stay actively involved in investment decisions.

3. Advisory PMS

Under this model, the PMS provider only suggests investment strategies and stock ideas. The client is responsible for executing trades through their own trading account.
Ideal for: Experienced investors who need expert guidance but prefer independent execution.

Benefits of Portfolio Management Services for Investors

Opting for PMS offers several advantages, especially for high-net-worth individuals (HNIs) seeking personalised investment strategies. Below are the key benefits:

• Professional expertise: PMS puts day-to-day portfolio decisions in the hands of a professional manager, who monitors the market, evaluates securities and manages the portfolio based on the agreed approach.
• Customisation and personalisation: PMS allows portfolios to be structured around an investor’s goals, risk tolerance and preferences, giving it a more individualised approach than pooled investments such as mutual funds.
• Diversification: PMS portfolios spread investments across securities, sectors and asset classes, helping reduce reliance on any single part of the market.
• Transparency and control: Investors receive regular information on holdings, transactions, expenses and performance. The extent of control over investment decisions depends on the model.
• Better tax efficiency: Since investments are made in the investor’s name, PMS offers better control over capital gains and tax planning compared to pooled structures like mutual funds.
• Higher return possibility: With focused stock selection and active management, PMS has the potential to generate higher returns than traditional investment vehicles, although risks are also proportionate.
• Personalised relationship management: PMS clients often receive personalised service and dedicated relationship managers who provide timely updates and assistance.

PMS vs Mutual Funds vs DIY Investing

PMS, mutual funds and DIY investing differ in how portfolios are managed, how much control investors have and how investments are structured. The key differences are:

Factor	PMS	Mutual Funds	DIY Investing
How it works	A portfolio manager manages an individual portfolio according to an agreed investment approach.	Investors pool money into a scheme managed according to its stated mandate.	The investor selects, buys, sells and monitors investments independently.
Ownership	Securities are generally held directly in the investor’s name.	The investor owns units of the mutual fund, not the individual securities.	The investor directly owns the securities purchased.
Customisation	The portfolio can be more personalised, subject to the selected approach and agreement.	Investments follow the scheme’s mandate, so individual customisation is limited.	The investor has complete control over what is included or excluded.
Control over decisions	Depends on the PMS model. Discretionary PMS gives the manager decision-making authority, while non-discretionary and advisory models involve the investor to different degrees.	The fund manager makes investment decisions on behalf of investors.	The investor makes every investment decision.
Minimum investment	₹50 lakh minimum investment in funds or securities.	The minimum varies by scheme and investment method.	There is no comparable PMS threshold; the amount depends on the securities selected.
Costs	May include management and performance fees, brokerage and other permitted expenses.	Investors typically bear the scheme’s expense ratio and applicable transaction costs.	Costs mainly depend on brokerage, taxes and other transaction-related charges.
Time and involvement	Less day-to-day involvement may be required, depending on the PMS model.	Investors mainly select schemes and monitor their investments.	Requires ongoing research, decision-making and portfolio monitoring.

Risks and Common Mistakes in PMS Investing

PMS investments are subject to market movements, and professional management does not eliminate the possibility of losses. Investors should understand the key risks involved and avoid common mistakes when assessing a PMS portfolio.

Risks 

• Market risk: Changes in market conditions can reduce the value of securities held in the portfolio.
• Concentration risk: Higher exposure to a particular stock, sector or investment theme can increase the impact of an adverse price movement.
• Liquidity risk: Certain securities may not be easy to sell quickly or at the expected price, particularly during volatile markets.
• Managerial risk: Portfolio performance can be affected by the investment decisions and strategy followed by the portfolio manager.
• Strategy risk: A PMS strategy may perform differently across market conditions, and its returns may not move in line with broader market indices.

Common mistakes 

• Focusing only on returns: Looking at headline returns without considering fees, expenses, and the level of risk involved can give an incomplete picture.
• Relying only on past performance: Previous performance does not guarantee future returns.
• Not checking SEBI registration: Investors may overlook the need to verify whether the portfolio manager is registered with SEBI.
• Ignoring the investment approach: Not examining the strategy, asset allocation and investment objectives can result in a mismatch with the investor’s requirements.
• Expecting guaranteed returns: PMS returns are market-linked and should not be treated as assured.
• Not understanding the model: Investors may overlook the difference between discretionary, non-discretionary and advisory PMS, which affects how investment decisions are handled.

How to Choose the Right Portfolio Management Service

Investors can consider a few key factors before selecting a PMS provider, which include:

Factor	What To Check
SEBI Registration	Verify the portfolio manager’s registration on SEBI’s website.
Investment Approach	Check the strategy, objectives, asset allocation and risk factors.
Performance	Examine performance data along with the relevant benchmark and time period.
Fees And Charges	Understand management fees, performance fees and other applicable expenses.
Risk Level	Check whether the strategy and portfolio concentration align with the intended risk level.
Disclosure Document	Read the document for risks, conflicts of interest, past performance and other key details.
PMS Model	Confirm whether the service is discretionary, non-discretionary or advisory.
Reporting	Check how portfolio holdings, transactions and performance will be reported.
Client Agreement	Review the terms, obligations, services and conditions before signing.

Conclusion

Portfolio Management Services (PMS) give investors visibility into the actual securities held, transactions undertaken and expenses incurred in their individual portfolio, rather than only a pooled scheme value. This makes the portfolio report an important record for assessing where returns came from and what risks were taken to generate them. Reviewing these details alongside the stated benchmark can provide a clearer picture of PMS performance over time.

FAQ‘s