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Investments made without a thorough understanding of the markets, the current financial climate, or a well-defined strategy and goal can result in lower returns than anticipated. Professional financial advice is always a benefit in such a situation. The Portfolio Manager’s Portfolio Management Services provide an appropriate mix of investment options based on an investor’s financial goals and risk appetite.
PMS is a professionally managed investment portfolio that includes stocks, fixed income, debt, cash, structured products, and other individual securities. It can be tailored to meet specific investment objectives. Unlike a mutual fund investor, who owns units of the fund, when you invest in PMS, you own individual securities. You have the freedom and flexibility to customize your portfolio to meet your specific needs and objectives. And even though portfolio managers may be in charge of hundreds of accounts, yours could be unique.
Types of Portfolio Management
There are two types of Portfolio Management Services:
- Discretionary Portfolio Management Service
The portfolio manager manages the invested funds independently in discretionary PMS. The investor describes his financial goals to the portfolio manager as the first step in this service. The account is managed by the manager in accordance with the investor’s needs.
The portfolio manager selects the investment instrument as well as the timing of the investment decision. The investor does not have a say in where the funds are invested.
A PMS agreement must be signed between the two parties before entering into a discretionary Portfolio Management Service. The manager’s and investor’s rights and responsibilities must be outlined in this document. The portfolio manager’s role must be clearly defined.
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.
- Non- Discretionary Portfolio Management Service
The non-discretionary portfolio management service is the opposite of the discretionary portfolio management service. In this PMS as well, the first step is the same. The investor must explain his financial objectives in order to make the necessary investments. The portfolio manager, on the other hand, follows the instructions given to them by the investor.
Investors who want to actively participate in the management of their funds and investments will benefit from a non-discretionary portfolio management service. The portfolio manager consults with the investor to determine which funds are best suited to their needs. The investor, on the other hand, is in charge of the timing of the investment. The manager is in charge of the execution.
This product works well for investors who wish to have an opinion on the design of their portfolio.
Features of Portfolio Management
- When it comes to soliciting clients, PMS has model portfolios. The PMS model portfolio may be assessed for track record of company selection and overall performance against the market index.
- The portfolio’s performance is solely determined on the manager’s ability to outperform the market. As a result, conducting portfolio manager due diligence is an important part of selecting a PMS. The educational background and experience of a portfolio manager highlights the competency and expertise they bring to the fund.
- Another feature of PMS is its investment strategy. It makes sense for an investor to understand the strategy before committing funds. If the strategies are complicated, the long-term viability of the strategies should be clearly stated.
Need of Portfolio Management
- Portfolio management enables portfolio managers to tailor investment solutions to clients’ specific needs and requirements.Thus a customizable portfolio.
- Portfolio managers assess a client’s financial needs and advise them on the most risk-adjusted investment strategy.
Importance of Portfolio Management
The significance of portfolio management are as follows:
Customized
PMS provides tailored investment advice to respective clients in order to help them achieve their financial goals. As well as the portfolio manager can make investment decisions based on an investor’s risk tolerance and expected returns.
Separate Portfolio
Unlike mutual funds, PMS investments are not influenced or governed by the actions of tens of thousands of investors. Buying and selling decisions, as well as their timing, are made at the investor’s discretion (depending on the type of PMS chosen).
Professional Management
The service manages portfolios professionally with the goal of delivering consistent long-term performance while controlling risk.
Continuous Monitoring
It is critical to recognise that portfolios must be constantly monitored and changes made on a regular basis in order to achieve optimal results.
Transparent Fee Structure
PMS investments come with a clear fee structure (legally agreed fee structure) and a detailed list of charges/expenses associated with a portfolio. Furthermore, a performance-based fee structure and ticket size can be used to tailor the expense ratio.
Frequently Asked Questions (FAQs):
1. What is the most important principle of portfolio management?
The most important principle of Portfolio Management is that it gives the client a customized service. The company takes care of all the administrative aspects of the client’s portfolio with periodic reporting on the overall status of the portfolio and performance.
2. What are the key elements of portfolio management?
The key elements of portfolio management comprises professional management, customization, monitoring, flexibility, risk management and transparency.
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