1. PMS are considered among high-risk investments like foreign stocks, forex trading, penny stocks, F&O stocks, commodities and alternative investments like art, stamps, coins, etc.
2. PMS provide exposure to stocks, debt, derivatives like cash futures, cash-to-cash, index arbitrage, etc., as well as commodities, to suit investors with large sums looking for a higher customization to earn above-average returns from their investments.
3. To achieve this objective, PMS offer and manage a "stock concentration", with MF features, besides investing in other instruments from time to time, as mentioned in their Disclosure Documents submitted to Sebi mandatorily, and which is normally available on the fund house's website too.
4. However, this comes with higher ticket size as an entry barrier (like Rs.25 lakh min. at any point of time), as well as higher cost with no capping of fees charged (although a fee structure is in place).
5. Most PMS here are discretionary schemes where portfolio manager takes decisions without consulting the investor, making it riskier than a mutual fund where fund manager has assigned mandates known to investors.
5. Liquidity is an issue too, as it can take a month to liquidate a PMS to return your principal investment, whereas in an open-ended MF, it takes just 2-3 working days (except 3-yr lock-in ELSS funds).
6. Taxation is even trickier, as the portfolio manager trades on your behalf virtually daily, making PMS profits taxable as business income.
7. While your intention might have been to merely achieve reasonable above-average CG returns, the tax authorities may have their own set of interpretations and disagree.
8. Therefore, a detailed study of these documents is also necessary, in conjunction with a closer scrutiny of the Faqs released by the fund house, before deciding on a PMS.
9. This exercise will also throw ample light on all my PMS-related points, and which may turn out to be a revelation too!
10. Thereafter, an investor would be more aware and better prepared to venture into PMS investment that substantially differs from an open-ended MF investment , as already explained.
Update:-
1. Continuing its focus on cost rationalisation reforms, Sebi has now redrafted an existing 25-yr old regulation concerning Portfolio Managers, for limiting selling commissions, besides other changes, in PMS plans.
2. This redrafted Regulation, called SEBI (Portfolio Managers) Regulations, 2019, is currently available on its website.
3. Herein, it states that:-
a) The portfolio manager shall charge an agreed fee from the
clients for rendering portfolio management services without
guaranteeing or assuring, either directly or indirectly, any
return and the fee so charged may be a fixed fee or a return
based fee or a combination of both.
b) Provided that no up-front fees shall be charged by the portfolio manager directly or in-directly while handling the portfolio of the clients.
4. Once this Regulation is implemented, Sebi would likely become the first major market regulator for PMS plans.
5. In the meantime, Sebi has increased networth of a PMS from 2 Cr to 5 Cr, and investment size from 25 lac to 50 lac.
6. Discretionary portfolio managers can now invest in listed companies, money market securities and other specified instruments only.
7. Non-discretionary portfolio managers can now invest only 25% max in unlisted companies and securities.
8. However, it has not yet issued any firm guidlines to address:-
a) Lack of uniformity in shared performance data.
b) Lack of action on customer grievance redressal.
2. PMS provide exposure to stocks, debt, derivatives like cash futures, cash-to-cash, index arbitrage, etc., as well as commodities, to suit investors with large sums looking for a higher customization to earn above-average returns from their investments.
3. To achieve this objective, PMS offer and manage a "stock concentration", with MF features, besides investing in other instruments from time to time, as mentioned in their Disclosure Documents submitted to Sebi mandatorily, and which is normally available on the fund house's website too.
4. However, this comes with higher ticket size as an entry barrier (like Rs.25 lakh min. at any point of time), as well as higher cost with no capping of fees charged (although a fee structure is in place).
5. Most PMS here are discretionary schemes where portfolio manager takes decisions without consulting the investor, making it riskier than a mutual fund where fund manager has assigned mandates known to investors.
5. Liquidity is an issue too, as it can take a month to liquidate a PMS to return your principal investment, whereas in an open-ended MF, it takes just 2-3 working days (except 3-yr lock-in ELSS funds).
6. Taxation is even trickier, as the portfolio manager trades on your behalf virtually daily, making PMS profits taxable as business income.
7. While your intention might have been to merely achieve reasonable above-average CG returns, the tax authorities may have their own set of interpretations and disagree.
8. Therefore, a detailed study of these documents is also necessary, in conjunction with a closer scrutiny of the Faqs released by the fund house, before deciding on a PMS.
9. This exercise will also throw ample light on all my PMS-related points, and which may turn out to be a revelation too!
10. Thereafter, an investor would be more aware and better prepared to venture into PMS investment that substantially differs from an open-ended MF investment , as already explained.
Update:-
1. Continuing its focus on cost rationalisation reforms, Sebi has now redrafted an existing 25-yr old regulation concerning Portfolio Managers, for limiting selling commissions, besides other changes, in PMS plans.
2. This redrafted Regulation, called SEBI (Portfolio Managers) Regulations, 2019, is currently available on its website.
3. Herein, it states that:-
a) The portfolio manager shall charge an agreed fee from the
clients for rendering portfolio management services without
guaranteeing or assuring, either directly or indirectly, any
return and the fee so charged may be a fixed fee or a return
based fee or a combination of both.
b) Provided that no up-front fees shall be charged by the portfolio manager directly or in-directly while handling the portfolio of the clients.
4. Once this Regulation is implemented, Sebi would likely become the first major market regulator for PMS plans.
5. In the meantime, Sebi has increased networth of a PMS from 2 Cr to 5 Cr, and investment size from 25 lac to 50 lac.
6. Discretionary portfolio managers can now invest in listed companies, money market securities and other specified instruments only.
7. Non-discretionary portfolio managers can now invest only 25% max in unlisted companies and securities.
8. However, it has not yet issued any firm guidlines to address:-
a) Lack of uniformity in shared performance data.
b) Lack of action on customer grievance redressal.