The rise of portfolio management services in India

The rise of portfolio management services in India -

As per a study, more and more Indian investors are seeking the services offered by portfolio management companies. The financial year ending 2017-2018, has witnessed a 50% increase in the number of investors opting for such professional services. Portfolio management services In India is seen as one of the best investment options which is apparent from this growth. These managers chalk up various definitive stratagems that have proven to benefit individuals looking to increase their funds strategically.

How do portfolio managers work?

Portfolio managers invest directly in securities through a few focused portfolios. The managers do not pool the total assets of the investors into a single large pool (a practice adopted by mutual fund platforms), but maintain every account separately and independently. That said the securities invested in, for different individual portfolios, are usually similar. In FY 2017-18, the size of the assets managed for these accounts have seen an incremental growth. Note that not all portfolio management firms manage equity assets, however a huge chunk of the funds are mostly invested in equity.

The reason behind the growing interest

PMS companies have started putting a cap on direct and straight-forward commissions for the mutual fund products. They have also shifted to a direct strategy for large-sized and high net-worth individual investor accounts, thus lowering the margins offered to the distributors. Furthermore, the upfront commissions for the management services, which usually come with a three year lock-in period, can be as high as about 4.5 to 5 percent in the first year of investment, for the distributor. Many investment management companies claim to have witnessed increased cases of portfolio management services being propositioned within the last financial year. Even investors who have previously not used these services or invested in this particular structure are being encouraged by wealth managers and investment advisors to consider PMS.

The need to find the right portfolio manager

Companies who have been in the portfolio management businesses claim that the fund manager you choose has a great impact on aiding the growth of your corpus. Clients should concentrate on choosing the right portfolio management firm and the right manager and pay less attention to the commission he earns. A manager with greater experience is likely to charge you a higher commission but can also bring his brand of expertise and required knowledge about the market conditions, which can guarantee great returns. Unfortunately, most investors tend to focus on the commission they must chalk out and ignore the experience a well-researched manager can bring to the table. If an investor is considering investing in mutual funds, he should be all the more judicious in selecting his portfolio manager. Instead of using a broker, it is better to use the services offered by registered portfolio management companies in scaling your corpus.

Who should choose a portfolio management service?

Not all investors require portfolio management services in India. The services are offered only to such individuals willing to invest a minimum of ?25 lakh. As such, these services are best suited to individual who have a high net worth. One of the greatest advantages offered to such individuals is that they can get access to portfolios which are focused around specific themes. Most PMS portfolios concentrate on a select few stocks which are usually not more than 15 to 25 stocks. As a matter of fact, certain portfolios have only as few as 5 stocks. If you compare the PMS portfolios to mutual fund portfolios, you�ll find that most investors have as many as 80-100 varied stocks, each with a different risk or reward guarantee. PMS professionals help you grow your corpus by relying only on a few focused stocks which can outperform any mutual fund or other investments.

What kind of stocks should you invest in?

Investors receive the expertise of portfolio management professionals who guide them in investing in good-quality stocks with low free float or small market capitalisation. Investors can buy more than the average mid-cap strategies as there are various small but differentiated portfolio management service strategies which are easily available. Good PMS companies usually encourage their clients to consider only four or five different PMS strategies, usually focusing on investments in market leaders, especially where the available free-float is low. High net worth individuals are encouraged to choose PMS strategies as opposed to mutual funds, because despite their large corpus sizes, mutual funds do not have access to such specialized shares.

The general mechanism of portfolio management

Once you invest, you can see the portfolio activity at every step. You can witness stocks being purchased and sold in the name of the individual investors. All the stocks are safely held in the demat account owned by the investor. Furthermore, investors receive real-time alerts for every single transaction made in their demat account. Besides, portfolio management services in India are required to follow the strict format of performance disclosures as prescribed by the Securities and Exchange Board of India (SEBI). The fact that these are individual portfolios usually proves advantageous to investors. As such the portfolio returns of an individual is not impacted by cash flows from any other investors.

What should you be wary of?

Bear in mind that PMS accounts are usually negotiated accounts between investors, advisors and managers. As such, the fee structures may vary, although several portfolio managers offer both, profit sharing and fixed fee over a fixed hurdle rate. Investors need to know that there isnt any standard prescribed charge an as per the competitive pressures of the market, you may have to pay a 2-2.5% fixed fee, including distributors commission for the portfolio management service offered. While all investor transactions are transparent, investors do not have access to see the performance of other investors portfolios and the overall proportion. A model portfolio may or may not exactly translate into the final portfolio for every investor. As such these services are buyers beware products and investors must decide if the distributor or advisor is selling them a PMS strategy because the latter is getting a higher commission or because it is on the interest of the investor.

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