How to Select the Right Portfolio Management Service for You?

Portfolio Management Services, Portfolio Management, PMS advisory services, Portfolio Management Services in India

Portfolio Management Schemes (PMS) have done well, so you may be looking to invest in one of them.  Since the minimum investment into a PMS is Rs 50 Lakh, you may not be able to diversify as one does for Mutual Funds.  Further, most schemes also have an exit load up to 2-3 years.  Hence, choosing the right PMS becomes critical for you. A few points to consider:  

  • Establish clarity of purpose

There should be clarity and understanding of your risk appetite while choosing your service provider. i.e. Do you want the highest returns (which comes with higher volatility) or a consistent performer who manages risk well. You should accordingly shortlist the most suitable ones.

  • Vet the credentials of your PMS provider

Make sure that you have gone through all the required credentials of the provider like the past track record, transparency, and risk-adjusted returns; and draw out a comparison. Ultimately, there should be a consensus of minds before finalizing any deal and you shouldn’t be discriminating based on past performances alone.

  • Make informed decisions about the cost structure

You should be well-versed with the cost structure. It should be flexible enough to accommodate all your financial constraints and should allow you to choose between fixed and variable fee options. Annual fund management charges normally apply both for fixed and variable fee structures.  Variable fees are normally computed as a percentage of the profits generated above a threshold but would have a lower fixed fee component. Make sure that your manager briefs you about the expense structure apart from the fund management fees.

  • Choose a fund that aligns with your goals

Whether it is a large or multi or small cap fund, choose a fund based upon your risk-taking capacity. You may also choose your strategy based on the market environment as it keeps oscillating between large and midcap funds.  One way to take a mid path through a multi-cap fund.  It’s important to see what you are capable of and align your investments accordingly.

  • Allocate your funds suitably

While the PMS requires you to invest in lumpsum, many PMS houses have created a systematic transfer approach into the equity fund. They take your money into a debt fund and allocate it in a phased manner based on your instruction.  This protects you from the risk of buying equity at its peak value and a down-cycle may impact you adversely.

Things to watch out for

First, going after the highest returns could also mean higher risk. Ask yourself if you have the risk appetite to bear higher losses. In any case, you can mitigate risks through systematic transfer mechanisms.

Secondly, pay attention to your portfolio size. Considering the minimum investment is Rs 50 lakhs, track what percentage of your investment is going into this scheme. Some portfolio managers may allow mutual fund strategies to lower the risk for you.

Remember, diversification complements your safety margin with a value-driven approach. It also helps smooth out the effects of changes in stock price momentum and other market risks. If it’s too complex, get a professional to help you there.