Introduction
A Portfolio Management Service (PMS) is a customised investment product created according to the needs and objectives of an investor. The unique thing about PMS is that it is run and managed by a group of experienced professionals. The experts can perform extensive research and assess securities for investors.
Once the investor hands over the PMS investment amount to the service provider, a relationship gets established between them. The PMS will try to optimise your returns by investing in securities like equity, commodities, and more. While PMS can be considered a customised form of mutual funds, it comes with a minimum investment requirement.
But what is PMS minimum investment? Dive deeper to find out.
Minimum Investment in PMS
The PMS minimum investment or minimum ticket size has evolved over the years. When PMS regulations were first announced in 1993, the minimum investment amount was Rs 5 lakhs. Later, it was increased to Rs 25 lakhs.
However, in November 2019, the price was further hiked to Rs 50 lakhs. SEBI has also declared that in case of a shortfall in individual accounts, the gap needs to be mitigated within a particular period.
The PMS minimum investment amount is aimed to add an element of safety for investors. PMS is a high-risk venture suitable for high-net-worth individuals (HNIs). Therefore, the PMS minimum investment amount ensures that not too many retail investors are attracted to it.
The minimum investment amount ensures that investors with a high-risk appetite have a better understanding of the risk. The minimum investment amount also ensures that only serious investors are attracted to it. As only a limited number of investors are suitable for it, PMS fund managers can stay more focused on a smaller segment of investors and succeed in offering the best service.
Why Should You Invest in PMS?
The different reasons to invest in PMS are as follows:
● Personalized Investment Led By Experts
PMS offer individualized investment solutions to meet the requirements of a wide range of clients. Investors are allowed to choose among different portfolios, including large-cap, mid-cap, small-cap, and multi-cap, according to their risk tolerance. A portfolio manager will enable portfolio customization and develop investment strategies and trading timings according to your investment objectives and your chosen PMS.
● Reassuring Liquidity
Investors are allowed to withdraw partial amounts from their portfolio according to the agreement terms between the client and the portfolio manager. But the value of an investment in the portfolio after each withdrawal cannot be lower than the applicable minimum investment amount.
Another advantage of PMS is that portfolio managers cannot impose a lock-in period on investors. However, fund managers can charge an exit fee for an early exit.
● Effective Risk Management
A few important checks performed by a fund manager in their risk management plan are as follows:
● The value and composition of the portfolio, description of goods and securities, value of each security in the portfolio, total number of securities, the value of goods, units of goods, aggregate value and cash balance of the portfolio on the date of the report.
● Dividends, rights shares, bonus shares, and either beneficial interests received during the period of the report.
● Transactions are undertaken during the period of the report, including data on transactions and details of purchases and sales.
● Portfolio management fee and other expenses incurred in managing the client's portfolio.
● Default in payment of coupons or other payment default in the underlying debt security.
● Details of risk predicted by the portfolio manager and the risk related to the securities suggested by the portfolio manager.
Moreover, regulations prevent PMS from investing in derivatives so that the portfolios are less volatile.
● Full Transparency
As mandated by law, all the investors receive information about each transaction in PMS along with the entire cost structure. According to the SEBI, portfolio managers must invest their customers' funds in securities listed and traded on a recognized stock exchange, money market instruments, mutual fund units, and other securities as authorized by the board. PMS exclusively invests in mutual fund units through direct plans and cannot charge the client any distribution fees.
● Extremely Safe with Proper Regulations
PMS is a flexible investment choice, but it adheres to a legally enforceable investor-fund management relationship to protect investors. In terms of experience and operating norms, the Securities and Exchange Board of India (SEBI) has strict regulations in place for fund managers and Asset Management Companies (AMCs). Therefore, no investor has to worry about the safety of PMS.
Moreover, SEBI has proposed a set of ideas to make PMS more transparent and investor-friendly by standardizing the services. Even though the committee has recommended some substantial improvements, it has merely touched on the fee structure, which is a difficult area for investors to comprehend.
What are the Types of Portfolio Management Services?
The different types of asset management services are as follows:
● Discretionary PMS: It provides a free hand to the portfolio manager to make investment and portfolio decisions on behalf of the investors. The portfolio manager does not need to consult the investor before making any decision. Currently, a majority of companies offer this kind of investment management service.
● Non-Discretionary PMS: It can be described more as investment advisory services. The portfolio manager will offer you valuable investment advice according to your risk appetite and objectives. The investor gets the final say in whether a particular investment should be made. But the portfolio manager will be responsible for the execution.
Conclusion
Several PMS schemes are available in the market with different offerings and wealth management services. The best PMS scheme for your fund management objectives is based on your price-to-performance ratio of a particular PMS provided by a specific firm. Perform in-depth research to pick a PMS scheme for times when you can't perform online trading yourself.
