The Hindu Business Line : Get your portfolio managed

For uninformed investors who would like to build a quality portfolio, the best option is to approach a company offering Portfolio Management Services.

Akhilesh K Singh

It is but natural to want to grow one’s money but the process of doing so is actually very intricate and requires experience and expertise. In the last four years, we have seen favourable markets. The recent crash has, however, taught us a significant lesson.

Full-time job

Investing is a full-time activity that entails timely flow of information, requires thorough understanding and sharp execution skills. When the markets were buoyant, many investors transformed themselves into fund managers. However, the danger of doing this is comparable to self-medication. The cost is understood only after paying a huge price, if your portfolio gets reduced to half the invested capital!

The solution lies in disciplined investing, selecting the right product and hiring the right investment manager. For uninformed investors who would like to build a quality portfolio, instead of buying stocks on ’tips’ and hearsay, the best option is to approach a company offering Portfolio Management Services (PMS) and let it manage their investment. PMS as a product first caught investor fancy in the year 2002, when the capital gains tax regime for such products was made favourable and brought on a par with mutual fund investments. Currently, there are over 200 SEBI registered Portfolio Managers, offering Discretionary and Non-Discretionary PMS products to their clients.

Types of products

A Discretionary PMS allows the portfolio management company to manage the portfolio on behalf of the client, based on the authority given by the investor. However, in case of a Non-Discretionary PMS, the Portfolio Manager can only advise; the ultimate decision lies with the investor.

There are broadly two formats that are followed by the portfolio managers, one is the “pool” format and the other is a direct account. In the pool format, separate Demat and broking accounts are not opened for each client and instead opened in a common product name. Funds of investors are internally allocated to each individual client account that is managed independently. This structure must not be mistaken with the mutual fund schemes. In a PMS, the cash component and stocks for each client are managed individually, unlike the mutual funds where the resources and the portfolio are pooled and the performance for every investor is linked to the fund’s common NAV.

The other structure is a direct account where a separate bank, Demat and Broking account are opened in the name of the client and the portfolio manager gets an authorisation specifically to manage a client’s account.

Custom-made

As a product, PMS offers great flexibility to the investors, with various products to suit varied requirements of clients. PMS provdes the benefits of a customised and professionally managed portfolio that suits your mandate and risk appetite. PMS also offer greater flexibility to hold cash based on market conditions, allocate investments across sectors based on client preferences and market trends.

The preliminary stage of PMS involves a careful assessment of your personal situation and investment objectives. Based on factors such as investment horizon, return expectations and risk tolerance, you can select a service matching your individual requirements. Make sure you are aware of the organisations’s research and fund management capabilities.

Not HNIs alone

There is a misconception that PMS essentially is a high net worth individual (HNI) product; in fact, there are various PMS products offered by asset management companies and brokerage houses that accept investments as low as Rs 5 lakh.

There are wide-ranging fee structures across various managers with options between fixed fee or performance-linked fee structures. It is recommended that you thoroughly understand them before signing up.

Most portfolio managers offer online access to their clients, allowing them to view complete portfolio details, such as the stock holding, performances, transactions and bank details whenever they require.

Thus, learning from the recent crash and the ongoing volatility, it is prudent to entrust fund management to experienced portfolio managers, and this will help you build a superior portfolio .

(The author is Business Head — Emkay Midas Wealth Management.)

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