All you Need to Know About Portfolio Management Services

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For a novice, investing may not be an easy task. Understanding the market takes some time and not every investor may be able to dedicate that much time to do it. Just like our life goals, investments are done to meet some financial goals over a period of time.

Seasoned investors are able to match their financial goals with their investments. They have options in the form of Bank Fixed Deposits. They can also choose to invest in stocks, debt funds, hybrid funds. The choice also depends on their risk appetite and how much interest income they can gain from the investment tools. 

This is not, however, possible for everyone.  Not every investor is able to match a goal to a financial tool. At times like these, you need assistance and guidance. One wrong investment move could mean that their funds can get locked for a period of time or face loss due to the downfall of the investment tool. 

These investors can always get assistance in the form of Portfolio Management Services or PMS. 

What is a Portfolio Management Service (PMS)

The process of decision-making about matching objectives to investments, balancing the risks against the returns and performance, mixing allocation of assets in the needed asset class is portfolio management.  It is about establishing which tool of investment can give a better return all the while avoiding high risk.  

Portfolio Management Services are tailor-made services for investors. They are meant to be created as per the investor’s financial goals, risk appetite, and expectations on the returns on the investment. 

PMS investment means that the investor gets guidance and help from portfolio managers to help them allocate their funds in the right proportion in either equity, stocks, income funds, government securities or just create a portfolio with the right mix of all of the above. Most importantly, this helps in aligning the goals to the investment tools. 

When investors plan on a PMS service, it is understood that the advantages tend to outweigh the disadvantages. 

One of the advantages of a PMS investment means that it allows customization of investment options. Solutions are meant just to cater to the needs of the investor. Portfolio managers diversify and customize solutions keeping in mind the risk vs returns aspect of the investor.  

It also helps investors in risk management. They can control the amount of risk they are willing to take while creating their portfolio. This helps investors in ensuring stable returns in the long run. 

Liquidity is also a key when it comes to choosing a Portfolio Management Service as investors should have access to their invested funds in the time of need. Portfolio managers also keep investors updated on the movement of their portfolios. 

Types of Portfolio Management Services (PMS)

Once you choose to opt for PMS, the first step is to open a separate bank account. Apart from this, investors would also need a Demat Account. The investments made by you will be held in the Demat account and the returns get credited to the bank account. 

Now that the Demat account is open, you will need to decide on the type of Portfolio Management Services you would wish to avail of. 

There are two types of Portfolio Management Services: 

  1. Discretionary Portfolio Management Service: In discretionary PMS, it is the portfolio manager that independently manages the invested funds. The primary step of this service is that the investor explains his financial goals to the portfolio manager. In accordance with the needs of the investor, the manager manages the account. 

It is the portfolio manager who decides on the instrument of investment and the timing of the investment decision.  The investor does not get a say as to where the funds should be invested in.

Before entering into a discretionary Portfolio Management Service, a PMS agreement has to be signed between the two parties. This document needs to outline the rights and liabilities of the manager as well as the investor. It has to clearly define the role of the portfolio manager. 

Since the portfolio manager is in charge of the trade, the investor will have to sign a power of attorney giving the manager the right to operate the Demat account as well as the bank account opened for PMS.

  1. Non- Discretionary Portfolio Management Service: Non-Discretionary Portfolio Management Service is the opposite of discretionary PMS. The first step remains the same in this PMS as well. The investor has to explain his financial goals based on which the investments need to be made. However, the portfolio manager acts on the instructions that have been given to them by the investor. 

Non- Discretionary Portfolio Management Service works well for investors who want to actively participate in the management of their funds and investments. The portfolio manager consults with the investor as to which are the funds suitable for them. However, the timing of the investment lies with the investor. The execution is carried on by the manager. 

This product works well for investors who wish to have an opinion on the design of their portfolio. 

How does a PMS House Function

The purpose of a Portfolio Management Service is to assist investors with their investments. In this case, it is High Net-worth Investors or HNIs whose purpose of investment is to build an investment portfolio that aligns with their financial goals. 

HNIs tend to move towards PMS as the returns from this service have been historically considerably higher. 

However, the question that arises is what does a PMS house do exactly and what are its functions?

A PMS house consists of seasoned portfolio managers. These portfolio managers are the link between the investors and the investments. They strategize investment decisions in accordance with the clients to meet the financial goals. 

On the appointment of a PMS house, the first step is to create an agreement between the investor and portfolio manager. This agreement includes the role of the portfolio manager, along with the goals, strategy, and the risk appetite of the investor. 

On signing of the agreement, the investor has to offer a sum of INR 50 lakh or stocks equivalent to that amount, as mandated by SEBI. The role of a PMS house is not just to strategize investments. They also study market trends to ensure that the investors are not impacted heavily by the market movements. 

The function of a PMS house is to help investors increase their gains while reducing risks. However, there is no guarantee of the performance of the investments. PMS houses are part of the profits of the investment but not the losses. The onus of the loss falls solely on the investor and it is an understood aspect between the investor and the PMS house. 

The charges of the PMS house also tend to be high. They charge a percentage of the investment amount. It can range anywhere between 2-2.5% of the amount invested. PMS houses can also change brokerage charges along with a percentage of profits earned. This is dependent on the PMS house you choose to work with.

There are advantages as well as disadvantages of working with a PMS house. The high cost and the no performance guarantee are two drawbacks among them. The advantages can outweigh the drawbacks as well.  PMS houses assist investors in reaching their financial goals. Along with this, the main purpose of hiring a PMS house is to reduce the risks associated with investments. They also help in diversifying the portfolio and provide customization based on the financial goals. 

Choosing the right PMS house is the key. It is best to speak to the portfolio managers and do a general due diligence before hiring a PMS house. 

Suitability of PMS

Portfolio Management Service provides customization. However, this service is not suitable for every investor. When it comes to sustainability, there are two aspects in this:

  1. Risk-taking ability: Almost every investment is encircled by risk. This means that the investors are facing the risk of loss when it comes to their money. This is one reason why PMS is not suitable for every retail investor. 
    This service works best for HNIs who have a net worth of at least INR 3 crore. As an investor, you will need to allocate at least 15-20% of total assets in PMS. An investor with a net worth of INR 50 lakhs invests INR 25 lakhs in PMS means he is investing half of his assets in a portfolio. This means that there is a high risk of liquidity.
    If the investor with a net worth of INR 4 crore, invests 15% of his funds in PMS. This would mean that he is investing INR 6 lakhs. This gives him a safety net when it comes to liquidity and lowers risk. 

  1. Willingness to take Risk: After SEBI’s categorization of mutual funds, investors can invest in 200 to 250 stocks or options at tops. PMS is, however, customized and can have exposure to options in addition to the 250 stocks.  This means that there is additional risk beyond the already invested option. Willingness to take risks is another aspect when it comes to suitability. An investor also needs to be willing to take the risk which can come with PMS. 


Portfolio Management Services work in accordance with the investor’s wishes and goals. They curate portfolios for HNIs who are willing to take the risk and have the means to invest the funds. However, it works well only when financial goals and investments match to give higher returns over the invested time period. 

Frequently Asked Questions (FAQs)

1. How do Portfolio Management Services Work?

An investment vehicle, Portfolio Management Services work in accordance with the investor’s goals and tenure of achieving the goals. Portfolio managers manage the investments and depending on the type of Portfolio Management Service chosen, work with investing the funds. The ultimate objective is to achieve the goals with minimal risk and higher returns.

2. Are there Risks Associated with PMS Investments?

All investments are subject to market risks. The amount of risk depends on the instrument of investment. Investing in Small and mid-sized companies tends to be riskier as compared to investments made in large-sized companies. There is also a possibility of loss of principal amount in certain cases.

3. What is the Tax Treatment in PMS Investment?

Funds invested in mutual funds under PMS are subject to normal capital gain taxation. Profits on Mutual Fund investments held for a period less than 3 years attract short-term capital gain tax and profits on investments held for more than 3 years, attract long-term capital gain tax.
Profits from equity held for less than a year have 15% tax and long-term capital gain tax for investments held for more than one year are taxed at 10% without benefits of indexation.

4. Who can Invest in PMS?

PMS works best for High Net-worth Individuals. Apart from individuals, Hindu Undivided Family (HUF) proprietorship firms, corporate bodies, etc. can also invest in PMS.

5. What are the Modes through Which I can make Investments in PMS?

If an investor already has an existing portfolio consisting of mutual funds, stocks, and bonds, he can hand over the same to a portfolio manager to manage the same. The portfolio manager would then be in charge to revamp the existing portfolio. He would also be in charge to make necessary changes to the portfolio including selling the existing instruments to and invest afresh.
For new investors, they can hand INR 50 lakh and start their Portfolio Management Service.

Read more :

Portfolio Management Services Vs Mutual Funds

Importance of Portfolio Management for Investors