Portfolio Management Services in India

Bhavna GoyalFaculty: N. M. College of Commerce & Economics

Portfolio Management Services account is an investment portfolio in Stocks, Debt and fixed income products managed by a professional money manager, that can potentially be tailored to meet specific investment objectives.

Meaning

Discretionary PMS – Where the investment is at discretion of the fund manager & client has no intervention in the investment process.

Non-Discretionary PMS – Under this service, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the investor. However the execution of the trade is done by the portfolio manager.

Types of PMS

Portfolio management services either have a

Fixed

Profit-sharing

Hybrid fee structure

Fees in a PMS

PMS trade in a wide range of securities, which are not available to a mutual fund.

PMS regulations are less strict than MF regulations.

A PMS is a more personalised investment solution.

Advantages of PMS

It do not disclose the portfolio as much as MFs.

Disadvantages of PMS

Prudential ICICI Prudential ICICI Asset Management Company is a joint venture between Prudential Plc. - UK‘s leading insurance company and ICICI Ltd. - India’s premier financial institution. The Company serves as the investment manager for Prudential ICICI Mutual Fund, one of India’s largest private sector mutual fund. 

Example of Portfolio management Service Providers

Reliance Portfolio Management Services Reliance Portfolio Management Services is an exclusive offering from the portfolio management division of Reliance Capital Asset Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd., Reliance Capital Asset Management Ltd. is also the investment manager for Reliance Mutual Fund schemes wherein it manages assets worth over Rs. 42,200 crores (as on Feb 28, 2007). 

Example of Portfolio management Service Providers

There are two ways in which an investor can invest in a Portfolio Management Services:

Through Cheque payment Through transferring existing shares

held by the customer to the PMS account. The Value of the portfolio transferred should be above the minimum investment criteria.

How can investor invest in PMS

Beside this customer will need sign a few documents like:

PMS agreement with the providerPower of Attorney agreementNew demat account Documents like PAN, address proof and

Identity proofs are mandatory.

How can investor invest in PMS

(1)   Necessary infrastructure like adequate office staff, equipment and manpower to discharge the day to day activities.

(2)   To employ minimum two persons with experience to conduct portfolio management business.

(3)   Any person who is directly or indirectly connected with the applicant has not been granted registration.

(4)   The capital adequacy is not less than a net worth of Rs. 2 Crores in terms of capital plus free reserves.

:PROCEDURE FOR SETTING UP PORTFOLIO MANAGEMENT

SERVICES 

(5)   The applicant or his partner or director or principal officer is not involved in any litigation connected with the securities market.

(6)   The applicant has professional qualification in finance or law or accounting and business management.

(7)   The grant of certificate is in the interest of the investors

:PROCEDURE FOR SETTING UP PORTFOLIO MANAGEMENT

SERVICES 

A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks.

A portfolio manager is responsible for making an individual aware of the various investment tools.

A portfolio manager is responsible for designing customized investment solutions for the clients.

A portfolio manager must keep himself updated with the latest changes in the financial market.

Roles and Responsibilities of Portfolio Manager

A portfolio manager ought to be unbiased and a thorough professional.

A portfolio manager needs to be a good decision maker.

He should communicate with his client on a regular basis.

He should be patient with his clients.He should never sign any important document

on his client’s behalf

Roles and Responsibilities of Portfolio Manager

He should never pressurize his client for any plan.

He should keep client money in separate account with the public sector bank.

He should maintain the separate ledger account for all purchases and sales taken at market price.

Final settlement and termination of contract should be done as per contract.

Roles and Responsibilities of Portfolio Manager

The portfolio manager shall furnish periodically a report to the client, as agreed in the contract, but not exceeding a period of six months and as and when required by the client and such report shall contain the following details, namely:- (a) the composition and the value of the portfolio, description of security, number of securities, value of each security held in the portfolio, cash balance and aggregate value of the portfolio as on the date of report; (b) transactions undertaken during the period of report including date of transaction and details of purchases and sales;

Reports expected from Portfolio Manager

 (c) beneficial interest received during that period in respect of interest, dividend, bonus shares, rights shares and debentures;(d) expenses incurred in managing the portfolio of the client; (e) details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the portfolio manager for investment or disinvestment.

Reports expected from Portfolio Manager

There is a wide range of PMS product options in the market. Portfolio Management Services help you to take an optimum decision in choosing the ideal option. It gives you access to a wide choice of the best fund managers of AMCs offering customised Portfolio Management Services (PMS).

Equity Advisory Products Equity investment has become a more involved activity. It calls for awareness and understanding of the business and economic variables that affect equity valuations. There are several products that will help you make the appropriate equity investments. You can opt for dividend yield portfolios, equity portfolios investing in stocks across market capitalisations or products investing in large or mid-cap stocks.

PMS Product

Capital Protected Products Equity and derivative-linked capital protection products offer

you a flavour of the equity markets with capital preservation. Prudential ICICI and Benchmark offer you options in this category of PMS products.

Derivative Arbitrage Products These are a range of products that enable you to take

advantage of arbitrage opportunities in the derivative markets. They also take advantage of spreads between the price of a stock future and the underlying stock. Such products are suitable for people with investments in relatively low-risk assets who are looking for potentially higher risk-adjusted returns.

PMS Product

Pure Derivative Products These products endeavour to achieve significant

appreciation in capital, by investing in a mix of stock and index options. The portfolio may be considered suitable:

For investors with a high-risk appetite who desire significant appreciation in their capital and are willing to take on risk for the same

As a portfolio return enhancer for clients with large investments in low-risk fixed income assets

PMS Product

Alpha Products The Alpha Portfolio seeks to capture Alpha - which

is out performance to the index on the client’s portfolio. Thus, the entire portfolio will be hedged against overall market movements by using derivatives. It seeks only to gain from out performance vis-à-vis market while eliminating beta. The Alpha Portfolio is suitable for investors with a low to medium risk profile and an investment horizon of more than 12 months.

PMS Product