With the rise in personal wealth and the need for sophisticated investment solutions, High-net-worth Individuals in India are seeking professional services to manage their investments such as Portfolio Management Services.
Besides, the number of HNIs in India is expected to grow to 3.3 million by 2025, with a total wealth of $5 trillion, creating a larger demand for such services.
So, let us find out what PMS is and who should opt for the same.
What are Portfolio Management Services?
Portfolio Management Services (PMS) is a specialized investment service offered by financial institutions mainly to high-net-worth individuals and institutional investors. PMS provides customized investment solutions that cater to the specific needs of the clients, and their investment objectives. In PMS, a professional portfolio manager, by charging a fee, handles the investments on behalf of the clients, with the aim to achieve higher returns than the market.
PMS providers in India typically charge their fees in two ways – performance-based fees and fixed fees. Performance-based fees are typically a percentage of the returns generated by the portfolio manager, while fixed fees are charged as a percentage of the assets under management (AUM). The fees charged by PMS providers in India typically range from 1% to 3% of AUM.
How are they Different from Mutual Funds in India?
Mutual Funds typically have pre-defined investment strategies that are applied to all investors. Unlike mutual funds, PMS provides a high degree of customization. PMS is a discretionary service, which means that the portfolio manager has the authority to make investment decisions on behalf of the clients without requiring their prior approval. The portfolio manager creates a customized investment portfolio based on the client’s investment objectives, risk appetite, and investment horizon.
How Does Portfolio Management Services Work?
PMS typically involves a three-step process –
(1) client profiling and goal setting,
(2) investment strategy formulation, and
(3) investment execution and monitoring.
Let’s say a successful businessman who has accumulated a significant amount of wealth over the years is concerned about managing his wealth and wants to ensure that his investments are aligned with his financial goals. Now, he decides to engage the services of a PMS provider to manage his portfolio.
The steps that shall be then taken in the PMS process are as follows:
Step 1 – Client Profiling and Goal Setting:
The first step in PMS is to understand the client’s investment objectives, risk tolerance, investment horizon, and liquidity requirements. The portfolio manager works with the client to develop a detailed investment profile that captures the client’s financial situation and investment goals. Based on this profile, the portfolio manager formulates an investment strategy that is aligned with the client’s investment objectives.
Step 2 – Investment Strategy Formulation:
Once the client’s investment profile has been established, the portfolio manager formulates an investment strategy that is customized to the client’s investment objectives. The investment strategy may involve a combination of asset classes, including equities, bonds, commodities, and alternative investments. The portfolio manager may also employ different investment strategies, such as value investing, growth investing, and momentum investing, to achieve the client’s investment objectives.
Step 3 – Investment Execution and Monitoring:
After the investment strategy has been formulated, the portfolio manager executes the investment by buying and selling securities on behalf of the client’s portfolio. The portfolio manager makes investment decisions based on the investment strategy and the client’s investment objectives.
The portfolio manager continuously monitors the portfolio to ensure that it remains in line with the client’s investment objectives and to make necessary adjustments to the portfolio. This includes monitoring the performance of the investments and the market conditions. The portfolio manager also ensures that the portfolio remains diversified and manages the risk of the portfolio.
The portfolio manager also provides regular reports to the client regarding the performance of the portfolio. The reports include information about the investments made, the performance of the investments, and the fees charged. The portfolio manager also communicates with the client regularly to discuss the portfolio and any changes that may need to be made.
Why Portfolio Management Services (PMS)?
- Customized Investment Solutions:
One of the main benefits of portfolio management services, as can be ascertained, is that the investment solutions are customized to the client’s investment objectives and risk tolerance. This ensures that the client’s portfolio is aligned with their investment goals and preferences.
- Professional Management:
Portfolio management services are overseen by experienced portfolio managers who have the expertise to manage investment portfolios in a professional and active manner. They actively manage the portfolio, making investment decisions based on market conditions and the client’s investment objectives, which helps to ensure that the portfolio remains aligned with the client’s investment goals.
- Regular Monitoring and Reporting:
The portfolio managers continuously monitor the portfolio, providing regular reports to the client. These reports help to keep the client informed of the performance of their investments and any changes that may need to be made to the portfolio. This ensures that the client is aware of the performance of their investments and can make informed decisions about their portfolio.
- Access to Alternative Investments:
Portfolio management services provide access to alternative investments such as private equity, hedge funds, and real estate investment trusts (REITs). These alternative investments provide diversification and potentially higher returns than traditional investments such as stocks and bonds.
At Rurash Financials, we understand that every investor has unique investment goals and preferences. Therefore, we can help you avail services of experienced portfolio managers who work with each client to develop a detailed investment profile that captures their financial situation and investment goals. Based on the profile, they can help formulate a customized investment strategy that is aligned with the client’s investment objectives.