09 Dec 2022 • 12 min read
PMS is a professional investment service where skilled portfolio managers and capital market professionals manage your investment portfolio in equity stocks, debt, structured products, fixed income instruments, etc., with a research team assisting them in their job to optimize the investment at risk-adjusted levels. Often PMS as a service can also be extended only to manage an equity portfolio. The service is particularly aimed at HNIs and UHNIs.
PMS is a methodical strategy to increase profits while lowering the risk associated with your assets. You may use it to make informed judgments that are backed by thorough research and verifiable facts without having to do any work. You are also more equipped to handle market difficulties. There are different types of PMS prevalent in the industry.
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Under this type, the investment manager has complete control over the portfolio. He is entrusted with the management of a particular portfolio. The manager chooses a suitable strategy based on your objectives, risk tolerance, and tenure and executes them without having to consult the investor. However, the portfolio manager always works in accordance with the portfolio's mandate or per the portfolio's objectives. The best interest of the investors is preserved under this type of management. It particularly works well when the portfolio manager requires to take immediate action on the portfolio based on the market direction.
Under this method, the investor has complete control over his portfolio. The portfolio manager’s role is similar to that of an advisor. In this method, the portfolio managers advise you on investing, but the final decision is yours. Based on your approval, the portfolio managers will take the appropriate action on your behalf. This could potentially cost time and effort, especially in equity markets, when often, you may have to execute tactical transactions to mitigate risk.
Utilizing a good PMS or a portfolio management service has manifold benefits, of which the primary one is to realize that your money is being handled by capable people. They know how to handle money in various market situations and in volatile markets. Thus, your portfolio would be managed effectively, and their efforts will be focused on gradually increasing your profit margin.
Your financial goals and risk profile are assessed, and the investing strategies that the portfolio managers work out are aligned with your risk profile and your goals. This is starkly different from the mutual fund experience, where the fund is managed on a large scale subject to the mandate in the scheme information document. There is no effort to customize the portfolio in accordance with the needs of the investors. However, in the case of PMS, there is a lot of effort to screen the investor and understand his / her requirement and invest in accordance with their goals and preferences. They continue to adjust the plan in light of your age, risk tolerance, budget, and income.
The primary intent of a portfolio manager is to increase returns while decreasing the risk for your investment. They concentrate on spreading out the risk so that you won't lose money when market trends alter. They endeavor to bring in the best opportunities in the market that complement your portfolio. The effort is also to foresee extreme risks in the market and realign the portfolio to ensure that the portfolio does not lose much value during such a downturn.
A portfolio manager will closely monitor each asset's performance and the regular returns produced. Your investment is changed to achieve your financial goals based on prevalent market trends to ensure that you stay aligned with the objective of optimized returns at risk-adjusted levels.
Here are some pointers on how to choose the right PMS for you:
Look at the past track record in terms of the performance of their funds. Further, you can also reach out to other clients for testimonials to ensure that you commit your funds to a company that provides best-in-class service. Also, look for a company with a proven track record of weathering extreme conditions in the market. It is important to note that many PMS houses could not weather 2008-type crises and had to shut down their business. You would not want to be associated with such a company.
The portfolio manager should be fully informed on the market, current investing strategies, and associated dangers. It makes no sense to ask someone whose understanding of market policies is lacking. Check on the credentials and past experience of the portfolio manager before you put your money in their hands.
One cannot emphasize enough on this aspect. Often we miss reading through the fine print and remain blissfully unaware of the charges applicable to any particular service. Engaging with a company that provides the most competent service is important.
The portfolio manager should be interested in working towards your personal objectives. There should be no other ulterior motive whilst managing your funds. Always ask as many questions as possible to be in the know of where and why your money is invested in a particular scheme. Being an informed investor is very important, given the slew of options available.
Here are some questions that you can ask before you sign on. They will provide a deeper understanding of the offerings. This will also help you make the most of the service being offered.
The PMS house should endeavor to provide optimal customization. They should align with your financial goals and risk-return profile.
The investment philosophy will provide insight into how the fund manager proposes to manage extreme conditions in the market. It also provides insight into how the investments would be vetted before investment.
This is one of the most critical aspects to ponder. Often, the fund builds its reputation on the shoulders of the fund manager. Upon the exit of the fund manager, there are instances where the fund suffers. It is integral to understand how the PMS house would manage the transition from one fund manager to another.
This would provide insight into the vastness of their offerings and whether they provide the latest offerings in the market. It also gives a sense of whether there are enough options to cater to your specific financial goals and risk profile.
Many PMS houses do not have a very strong research team, nor do they have proper screening tools. It is imperative that you assess their capability in this regard to ensure that you are getting the maximum out of your investment. A seasoned research team with good tools can do wonders for your investment.
If the PMS house has been around over the long haul, then you need to understand the past performance and the risk mitigation strategies that they have implemented to weather the crises.
Pre-screening and rebalancing techniques give you an idea of the quantum of turnover. A stringent and well-defined pre-screening strategy could help build a portfolio with a strong foundation. The rebalancing should be done in the best interest of the investor and not benefit the PMS house.
Fees and taxes are integral to any service. Always be in the know of how much is applicable and how it will be accounted for whilst calculating the returns on the fund.
The benchmark of the fund and the performance ratios used to monitor the fund should align with the industry standard. If you do not understand them, then take time to learn about them to help you assess if they align with your interest.
Although PMS as a service should be looked at with a long-term perspective, there may be emergencies when you may need to pull out funds. You can always question them on how the liquidation would be conducted. You can also gain some insight into how they propose to liquidate the positions and the criteria for doing so.
Equirus PMS focuses on taking concentrated bets for the long term in high-quality publicly listed Indian companies at reasonable valuations. The portfolio managers focus on generating significant outperformance over the broader Indian indices over a 3–5 year period.
Leveraging a long track record of value creation by institutional research teams, Equirus PMS intends to focus on businesses with leadership positions in industries with long runways. They intend to be early in the business discovery, thus providing maximum earnings growth with limited churn. Their investment philosophy is founded on the synergies of value and quality. To qualify as a potential investment in the portfolio, companies must have several qualities most relevant to long-term growth—qualities recognized and rewarded over time by investors—and should also be selling at a price below their intrinsic value. With 95% of the portfolio manager’s net worth invested in the fund, the interest of the fund manager is aligned with that of the customers. Many of these factors are key differentiators for Equirus.
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You can always reach out to our financial counselors for a detailed discussion on how our service may fit into your scheme of things.