PMS (Portfolio Management Service) is a high-touch investment vehicle providing tailored investment solutions to high-net-worth investors. Professional fund managers with their fine expertise aid HNIs in managing their portfolio with full flexibility (in accordance with their specific needs and financial goals). It plays a crucial role for investors in managing the finances of accredited investors using tailored strategies and solutions. That’s why most HNIs prefer investing through PMS, as they are well aware of its benefits. Hence, it is essential to know the benefits of investing in PMS before executing investment operations.
In this article, we will explore the benefits of investing in PMS to understand the intent behind High-Net-Worth Investors preferring it.
Top 5 benefits in investing in PMS:
Standard investment avenues often lack the flexibility required to manage substantial wealth of High-Net-Worth-Investors effectively. PMS bridges such gaps to offer individualized strategies and dodging solutions to the various market conditions.
1) Bespoke Portfolio Customization: The investment portfolios are designed based on the investor’s financial goals, risk tolerance, time horizon and risk appetite. The portfolios are also concentrated or opted to high-conviction portfolios with the potential to deliver higher returns over the benchmark, thematic portfolio is the best option to play within a specific sector.
2) Direct ownership: Direct ownership offers distinct structural advantages beyond simple visibility. Unlike Mutual Funds, where the investors hold the units of securities, instead of securities, it facilitates the direct ownership with a personal dematerialised account. All investment info relating to performance, portfolio history, current holdings, important updates and status, and more are highly transparent to the HNIs.
3) Active strategy execution and management: PMS managers can make suitable investment decisions based on market situations, as it allows PMS managers to buy or sell stocks swiftly. This agility allows them to manage the portfolio through market insights with deep research actively. Fund managers initiate critical stock analysis, thesis and assessment of risks like Market risks,Concentration risks, Liquidity risks and managerial risks, along with economic forecasts.
4) Sophisticated fee structure and tax treatments: The assigned fund manager performs constant portfolio monitoring, manages 20-30 stocks of different companies, takes high conviction calls and aims for absolute returns. The fund manager can charge a fixed sum and some may also charge a fixed sum with additional profit shares. It Comes with a potential to deliver a significant outcome against diversified indices.
The tax liabilities are not triggered by the aggregate redemption actions of investors. PMS taxation mainly focuses on capital gains and dividends. Gains from investments held for one year or less are subject to short-term capital gains tax, whereas those held longer benefit from reduced long-term capital gains rates. Dividends are taxed entirely at the investor’s individual income tax bracket, highlighting the importance of tax efficiency when determining overall returns.
5) Liquidity and cash calls: Since PMS portfolios are customized for individual investors and often built with high-conviction positions, liquidity is generally lower than traditional investments like mutual funds. Portfolio managers carefully plan cash calls and exits by considering market depth, volatility, and investor requirements. While PMS allows timely buy and sell decisions, market timing remains a double-edged sword—offering higher return potential with added short-term risk. For HNIs, this trade-off is acceptable in pursuit of long-term wealth creation.
PMS comes with strategies like Capital Compounder strategy, Shift strategy, Contra portfolio strategy, Bespoke portfolio strategy, etc. [Offered by Carnelian]
How PMS differ from Mutual Funds?
Mutual funds are quite common and well-awared financial devices in terms of asset ownership and regulatory oversight. Unlike Mutual funds, Portfolio Management Services (PMS) does not include investment schemes that pool money from many investors. Portfolio Management Services (PMS) Vs Mutual Fund:
| Feature | Mutual Funds | Portfolio Management Services (PMS) |
| 1. Customization | Low. Works on a “pool strategy” where money is aggregated. Individual portfolio customization is not possible. | High. Offers individualized investment solutions. Strategies can be tailored to the unique needs of High Net-Worth Individuals (HNIs). |
| 2. Risk & Returns | Lower Risk. High diversification (40-70+ stocks) cushions against volatility. A safer option for retail investors. Returns are not guaranteed. | Higher Risk. Concentrated portfolios (20-30 stocks) increase risk but offer potentially higher, absolute returns. Allows for flexible, strategic asset allocation. |
| 3. Investment Size | Low Entry. Accessible to everyone. SIPs start from ₹100/month; lump sums from ₹100-₹1000. Offers high investment size resilience. | High Entry. Designed for HNIs. Minimum investment starts at ₹50 Lakhs and can go up to ₹25 Cr+ depending on the strategy. |
| 4. Horizon & Tax | Flexible. Suitable for both short and long-term goals. Tax is deferred—tax to be paid only when you redeem your fund units. | Long-Term. Best suited for long horizons. Tax is inefficient compared to MFs—every buy/sell trade within the portfolio is a taxable event for the investor. |
| 5. Types Available | Broad Variety. Equity, Debt, Hybrid, Index, Thematic, and Sector Funds. | Strategic Structures. • Discretionary: Manager decides independently. • Non-Discretionary: Investor approves decisions. • Advisory: Manager guides, investor executes. |
Conclusion:
Portfolio Management Services (PMS) offer flexibility and personalization beyond mutual funds. PMS provides higher returns through focused portfolio construction and active management. However, this comes with increased risk and unique tax implications. Discerning investors accept volatility and tax burden for substantial growth. A thoughtfully selected PMS is a strategic alliance for thriving in turbulent markets.
At Carnelian Asset Management, we deeply incorporate the financial acumen for a holistic approach to transform your wealth management to a next level sophisticated wealth management system.
FAQs
Q1: How to invest in PMS?
Several PMS providers, such as Carnelian, provide tailored and strategic approaches to assist you in achieving your financial objectives and enhancing your wealth management.
Q2: What is the main benefit of PMS?
PMS delivers better returns when adjusted for risk by focusing on targeted investments.
Q3: How does PMS handle the risks?
PMS professionals actively re-balance the portfolio performance through strategic diversification, consistent portfolio monitoring, effective use of risk management tools, and employing seasoned portfolio managers.
Q4: Is SIP and STP there in PMS?
Yes, after investing the minimum amount (₹50 Lakh), one can add more funds further at any intervals.
Q5: What will be the tax liabilities of an investor?
The PMS tax rules are the same as for individual investors. Each PMS transaction is a separate trade. Capital gains taxes depend on how long a stock is held. Currently, Long-term gains are taxed at 12.5% and Short-term gains are taxed at 20%.