💎 Should you invest in PMS? Here’s all you need to know before investing in PMS

What is PMS?

Portfolio Management Service (PMS) enables you to invest in a diverse range of assets such as equities, fixed income securities, cash, structured products, amongst others, all under the expert guidance of a professional fund management team.

Unlike mutual funds, where your investment is pooled with that of other investors, PMS provides a unique, individualised investment strategy, tailored to your specific financial goals and risk tolerance.

Types of PMS

PMS can be broadly classified into 3 categories:

1. Discretionary PMS: In this PMS, the portfolio manager has the complete discretion to make investment decisions on behalf of the investor. You entrust the manager with the responsibility of making timely and strategic investment decisions, without needing your approval for each transaction. Think of it as giving your personal chef the freedom to decide the menu and prepare it.

2. Non-Discretionary PMS: In Non-Discretionary PMS, your portfolio manager suggests investment ideas, but the final decision lies with you. Once you give the go-ahead, the portfolio managers take the appropriate action on your behalf. It's like your personal chef suggests a menu, but you have the final say on what is made.

3. Advisory PMS: This is a more collaborative approach where the portfolio manager provides investment advice tailored to your financial goals and risk tolerance, but the execution of the trades is done by you. It's akin to your chef giving you a recipe, and you cooking with that recipe.

Each type of PMS offers a different level of involvement and control over your investments. The choice depends on your personal preference, investment knowledge, and the level of trust and comfort you have with your portfolio manager.

The growth story of PMS in India

The growth of Portfolio Management Services (PMS) in India has been quite remarkable.

The total AUM of the PMS industry has experienced a significant surge over the past 7 years. From INR 10.45 lakh crores in March 2016, the AUM has nearly tripled, reaching close to INR 28 lakh crores in March 2023.

This remarkable growth shows the rising popularity of PMS as an investment avenue amongst high net-worth individuals and institutional investors in India.

Here’s a quick glance at the journey of PMS in India –

 The growth of the PMS industry is due to many factors such as increasing net worth and capital amongst Indian investors, access to expert PMS and the high risk appetite of investors.

The returns and potential to create wealth have played an important role too.

Performance of PMS in June 2023 across categories –

PMS v/s AIF v/s MF

These 3 types of investment avenues cater to different types of investors and have unique characteristics. Here's a comparison table that provides a snapshot of the key differences between PMS, AIFs, and Mutual Funds.

Investing in PMS is best suited for investors who prefer a personalised investment strategy and are comfortable with a higher risk-return trade-off.

Who can invest in PMS:

• Resident Indians, Non-Resident Indians (NRIs), or Persons of Indian Origin (PIOs).
• The minimum investment amount for PMS is INR 50 lakhs.
• Institutional investors such as banks, corporate bodies, partnership firms, and HUFs (Hindu Undivided Families) can also invest in PMS.

Now, let’s understand the pros and cons to help you analyse if PMS as an investment avenue suits you –

In conclusion, PMS offer a unique and personalised approach to investing, making them an appealing choice for investors.

However, like all investment avenues, they come with their own set of risks. It's crucial to understand your financial goals, risk tolerance, and investment horizon before diving into the world of PMS.