Portfolio management services are financial services that help individuals and institutions manage their investments. These services include creating and managing investment portfolios, providing financial advice, and monitoring market trends.
Portfolio management service, often known as PMS, is available to anybody with a minimum investment of INR 50 Lakhs. Discretionary and non-discretionary portfolio services are the two different categories of portfolio management services. Portfolio managers make investment choices on their client’s behalf in discretionary PMS. They are required to consult their clients before making any trades in non-discretionary PMS. Clients make the final choice, while portfolio managers handle implementation and aid in decision-making by taking care of these tasks. To provide portfolio management services, portfolio managers must be registered with SEBI. Portfolio management services may be provided by banks, stock brokerage firms, or even individuals registered with SEBI.
In India, there are many companies and financial institutions that offer portfolio management services. However, with so many options to choose from, it can be difficult to determine which portfolio management services are the best. What aspects should be taken into account to choose the ideal PMS?
Returns, fees, entry and exit loads, lock-in period, portfolio manager expertise, and investment strategy are essential components of every portfolio management service. Let’s examine each of them separately.
Returns
Generating returns is the primary goal of investing. The types of asset classes the portfolio manager invests in will affect returns. The majority of portfolio managers invest money in debt and equities. One must study the types of PMS products portfolio managers provide and select the best one for their risk tolerance. For instance, Estee Advisors offers a PMS product based on arbitrage called I-Alpha. As a result, I-Alpha has never experienced a month with a negative return. Similar to this, portfolio managers have various PMS products to meet diverse needs, such as optimising returns, and reducing risk while outperforming FD rates, etc.
Lock-in period
The lock-in period is the time frame during which clients are not permitted to withdraw their money. The minimum lock-in duration for portfolio management services is not specified. However, some portfolio managers provide their clients with minimal lock-in time. There should ideally be no lock-in period.
Entry & Exit Load
Exit load is the fee charged when clients leave the service, while entry load is the fee charged at the time of investment. The majority of companies offering portfolio management services levied either entry or exit loads. Entry and exit loads should be low for the best portfolio management services on the market.
Fees
Most PMS providers charge a flat charge which is based on the value of the portfolio plus a variable fee which will depend on returns earned.
Fixed fee: Portfolio managers will bill a predetermined percentage on the assets under management(AUM), a flat fee structure. In this instance, the cost is unrelated to the fund’s performance. For example, Estee Advisors charges a fixed fee of 2.4% annually.
Fixed + Performance Fee: Under this arrangement, portfolio managers charge a performance fee (profit share) if returns exceed a certain threshold. The minimal allowed rate of return is known as the hurdle rate. Example: Estee’s pricing structure is 1.5% Fixed + 15% Performance Fee above Hedge Rate.
Performance fee: This structure does not have a set fee. Only if the fund exceeds the hurdle rate do portfolio managers receive compensation. Ex: Estee charges 40% Performance cost in addition to 0% Fixed price.
Various portfolio managers offer several cost models. Investors should select a fixed price structure if they don’t want to share profits. Choosing a fixed fee + performance fee structure allows clients to reward their managers. The performance fee structure is preferable if clients wish to pay only when the fund exceeds the acceptable return.
Investment Method
The manager’s asset classes make up their investment strategy. Different asset types include equities such as small-cap stocks, large-cap stocks to low-risk debt products. To demonstrate the point, let’s look at two distinct cases: Vijay and Vinod.
Vinod is an aggressive investor who is 30 years old. Vinod’s investment strategy may follow an equity-intensive model and involve holdings in small- or mid-cap companies. Vijay, who is 45 years old, often books fixed deposits. He doesn’t want to take risks with his money. Vijay’s investing plan may involve balancing equities and low-risk assets to beat inflation and earn higher returns than the current fixed deposit rate.
The investor’s risk tolerance and expectations are the only factors that influence the investing plan. Therefore, one must evaluate how the management determines their risk appetite while also comprehending their objectives and financial goals. Following the first evaluation, one should keep an eye out to see if the manager is developing a plan that is suitable for the risk appetite and objectives.
Experience
Although it may not always produce the highest profits, experience may protect investors from downside risk. Experience covers the portfolio manager’s investing history across a range of asset classes, their investment process, the fund sizes they have previously managed, and their clientele. The investing approach is diversified because of experience in a variety of asset classes. Traditional, quantitative, factor, and multi-factor investing are all types of investment methodologies. Because certain investing techniques that succeed at small to medium investments may fail when scaled up, fund size is a crucial consideration. A client’s size may indicate that services are personalised. A larger clientele frequently constrains the personalisation of services.
India’s leading PMS Providers
Here is a list of some of the leading portfolio managers in India:
Estee Advisors: Estee Advisors, a leader in Indian quantitative investing, is regarded as the finest PMS in the country. Estee has established reliable models to systematically follow, evaluate, and systematically seize market opportunities. Estee has more than 14 years of expertise in quantitative investing. It has an AUM of more than ₹500 crores and a staff of more than 120 quant and technology specialists. For conservative, aggressive, and balanced investors, Estee offers 3 PMS options.
I-Alpha is Estee’s arbitrage-based product is for conservative investors seeking alternatives to fixed deposits.
Long-Alpha is Estee’s premier PMS product for aggressive investors. It is a product with a directed strategy designed to outperform a benchmark equity index while maintaining low volatility.
Allocation Alpha: Allocation Alpha dynamically allocates capital between equities, international stocks, and low-risk debt securities. This product is made for balanced investors searching for more hybrid fund investing possibilities.
Motilal Oswal
Since 1987, Motilal Oswal has been the oldest provider of financial services in India, providing full-service brokers. The business has a strong track record in the industry. They introduced their PMS in 2013.
ASK Investment Managers Limited: ASK Investment Managers Limited is a renowned asset and wealth management firm situated in Mumbai. Due to the devoted Portfolio Managers of ASK, several well-known industrialists attribute a significant portion of their firms’ success to the company.
Kotak Securities: In addition to small & midcap, and multi-cap stocks, Kotak PMS offers its customers the greatest investing method to invest in two important sectors: pharma and fintech. Every PMS strategy plan created by Kotak PMS solely seeks to create a varied portfolio with exceptional long-term asset preservation.
ICICI Prudential PMS: In 1995, ICICI Prudential became the first financial institution in India to offer PMS to its clients. Offering both discretionary and non-discretionary, the company also provides a variety of investing methods to fulfil client demands.
When should one begin making PMS investments?
A minimum investment of INR 50 Lakhs is needed to take PMS services. Although certain PMS products offer diversity, most experts advise against allocating more than 25% of wealth to any PMS product. Therefore, a capital of INR 2 Crores is the perfect starting point for investing in PMS goods.
Conclusion
In this article, we attempted to identify India’s top PMS. The best PMS will differ on risk tolerance, financial objectives, fee structure and other parameters. Therefore, it is wise to constantly maintain the assessment criteria close at hand and evaluate the available PMS in line with them.
Still in doubt, you can check Gulaq website to find out more about PMS.
