Portfolio Management Services (PMS) are tailor-made investment solutions offered by the SEBI-registered professionals like Carnelian. The professionals manage the portfolios of HNIs and ultra HNIs to help them achieve their long-term investment goals and yield competitive returns strategically.

PMS services are offered in three different types: Discretionary PMS, Non-Discretionary PMS, and Advisory PMS. In this article, we will help you understand what the main differences are to enable you to pick the most suitable one that matches your preference.

Types of PMS based on Investment control

1. Discretionary PMS (DPMS)

The discretionary management allows the Portfolio managers to drive independently and execute suitable investment strategies based on your risk-appetite, investment objectives and overall profile. Portfolio managers are authorized to take buying, selling and some other decisions solely, without the need of client approval. They will be responsible for the decisions taken on the behalf of investors.

Benefits of DPMS:

• Time-constraint: Discretionary PMS reduces the time and effort you need to spend on portfolio management.
• Synergy and expertise: It utilizes the portfolio manager’s knowledge and available tools or resources.
• Active execution: Portfolio managers actively participate and take swift actions based on the climate of the market.
• Tax implications: Portfolio managers consider the taxation aspects pertaining to investments.

Who should choose DPMS?

• Investors who prefer a non-interventionist strategy.
• Investors heading in with trusted portfolio managers to operate on their behalf.

Key considerations

• Limited control: Limited input on investment decisions.
• Dependence on Managerial competencies: Returns depend upon the portfolio manager’s skills and know-how.

2. Non-Discretionary PMS (NDPMS)

The Non-Discretionary Portfolio Management Services (NDPMS) also involves the recommendations and advice through a collaborative approach. But, the only contradiction is the final decision; that investors will be primarily responsible for taking.

Benefits of NDPMS:

• Autonomy in decision-making: NDPMS gives investors the freedom to take investment decisions with expert guidance.
• Transaction transparency and control: The veto power lets the investors hold the power of buying and selling, which means that the portfolio managers cannot take decisions without their consent.

There are some other types of PMS based on asset classes, Debt PMS, Equity PMS, Hybrid PMS (mix of Debt and Equity PMS) and Multi-asset PMS (Additional assets like Gold, Real estate Investment Trusts (REITs), etc.)

Who should choose NDPMS?

• Investors who can be actively engaged in portfolio management.
• Investors possessing the time and knowledge to assess investment suggestions.

Key considerations

• Required attention: It requires great attention and active involvement with timely responses and acknowledgements.
• Delayed approvals: Investors may fail to seize the market opportunities on account of delays in approvals.

3. Advisory PMS

In the case of advisory PMS, the portfolio manager’s role will be limited to providing investment advice only. All other aspects, including execution of strategies, operational responsibilities, and performance tracking, will be the responsibility of the investors.

Benefits of Advisory PMS:

• Absolute control and flexibility: As the responsibility of the portfolio managers is limited to the extent of recommendations. Investors can independently implement the strategies on their own.
• Economical fee-structure: The fees are lower than the other types, as there is an absence of managers in handling executions.

Key considerations

• Accountability: Investors will be responsible for maintaining the records, trade accuracy, execution plans and strategies, tax filings, etc.
• Error risks: There are higher chances of mistakes to occur due to absence in professional oversight.

Transform and expand your wealth management to a next level sophisticated wealth management system with Carnelian now!

SEBI Framework for PMS In India

Indian companies offering PMS fall under the regulatory framework of SEBI. It is mandatory for all such firms to comply with SEBI regulations.

The following are the rules established for PMS:

• Registered companies: Registration is primarily required for the companies offering PMS, it should be complied before offering PMS.
• Minimum required investment: SEBI mandates the minimum investment to be at ₹50 lakhs, limiting the target audience to HNIs and ultra HNIs in accordance with such risk-tolerance.
• Compliance overseeing: Each PMS provider is required to appoint a compliance officer to ensure strict adherence to SEBI guidelines.
• Disclosure requirements: PMS providers must update the investors regularly with a track of their portfolio performance, reports, fees and risk disclosures.
• Custodian involvement: An independent custodian is required to hold and manage the assets of an investor, to prevent conflicts of interest.

What to consider before choosing an appropriate PMS?

• Adherence to SEBI guidelines and regulations
• Degree of risk
• Financial goals
• Assessed performance
• Provider’s expertise, experience and other required details.

Conclusion

Portfolio Management Services are well-known for their robust and strategic investment solutions to enhance the wealth management for high net worth individuals. Investors can access these services and select a suitable strategy tailored to the investor’s portfolio- regardless of type, whether Discretionary, Non-discretionary and Advisory.

FAQs

Q1. Is the minimum required investment same for each type?
Mostly yes. Some providers may allow you to split the funds or some may require separate investments for each type. At Carnelian there are 3 PMS strategies, and each starts with a minimum of INR 50 lakhs.

Q2. Does PMS come with any lock-in period?
There is no statutory lock-in period, however, providers may charge an exit load (1-3%) if funds are withdrawn within the first 1-3 years. At Carnelian, there is no lock in period however an exit load of 1% is levied if redeemed/withdrawn within 12 months, post 12 months nothing is charged.

Q3. Which type comes with a higher fee structure?
The fee structure of both Discretionary and non-discretionary are similar, however, it might differ if opted for advisory due to independent handling and operating.

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