Long term investing into equity can be done in two ways – one is via systematic investment planning of mutual funds and another is via direct trading by an individual investor. The former is a safe and boring way to invest money in the stock market while the latter involves direct involvement by the investor with the added advantage of pulsating rush of blood originating from gains and losses that arise as the indices move like a pendulum. There exists another way called Portfolio Management Services or PMS. This is where a professional designs a portfolio for you and invests your money to generate profits. Does the concept make sense and are there any best ones in India ?
PMS – How does it work ?
When you sign up for PMS, a portfolio manager is assigned to you. Based on your risk appetite and financial needs, a portfolio of stocks is designed for you. These stocks are traded on the stock exchange with the intent of generating profits for the investor.
The stocks are held in your name in your DEMAT account and the portfolio manager has a power of attorney to operate the account.
There is a discretionary portfolio manager and a non- discretionary portfolio manager.
The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client.
The non-discretionary portfolio manager manages the funds in accordance with the directions of the client.
In India, these are offered by stock broking houses, independent PMS managers and even Asset Management Companies (AMCs).
When you invest in a PMS, you are considered a fat client. So you have complete access to the PMS provider who will cater to a one to one interaction, monthly statements, calls and good treatment. You don’t get these when you invest in a mutual fund, do you ?
The minimum fund size for a PMS portfolio is Rs 50 lakh.
A PMS portfolio is meant to beat the stock market by an average 5-7% and this can easily result into a annual return of 18% – 20%. If this were not to be the case, investors would park their monies with mutual funds which anyway return an average 15% over a long period of time.
A good PMS portfolio manager is difficult to choose. A lot of PMS by reputed firms brought disgrace to the industry when they made massive losses in 2008 and subsequently after that which led to implementation of new SEBI guidelines.
You need to ensure that the PMS is run by robust processes and not at the whims and fancies of an individual.
Process and philosophy are the most important ingredients of a PMS.
Investors should check data to ensure that historically the PMS has outperformed the market both on the upside and downside. Avoid those PMS providers who have a conflict of interest as quite a few do.
Make sure that the PMS provider is registered with SEBI (check on their website) – there are around 250 that are registered and some 750 that are not !
Fees of a PMS can be fixed or variable. In the fixed fees model, a charge between 1.5% – 3% can be charges on the assets being managed. In the variable fees model, fees of approximately 15% – 20% on profits generated are levied. Understating of how the fees is being levied is important as it can drain your corpus significantly.
Some PMS schemes charge an entry load of 3% which is applicable only at the time of entry into the PMS. There are other charges like brokerage charges, audit charges, fund management charges among others.
Who is PMS for ?
I strongly advocate that ordinary medium class investors do not invest in PMS. If your Rs 5 lakhs gets eroded and you feel like having a heart attack, PMS is not meant for you.
However, even a small investor can have a huge stock portfolio. Firstly, we advocate that direct stock trading is not everyone’s cup of tea and even a long term buy and hold strategy never earned everyone riches as small investors bought at the wrong time.
So better stick to mutual funds. But if you made a pact with the devil that you need to subscribe to PMS, then ensure you can sleep well if you lost all of that money. If not, PMS is not for you.
PMS is meant for those who consider the loss of capital a small blip on their savings radar, according to me. They don’t get bothered much and move on in life with another PMS provider !
The top portfolio management services in India might have returned decent amounts to investors but remember that there have been notorious ones as well – it only takes one big loss for a small retail investor to go down the drain on his life’s hard earned money.
To conclude, small retail investors should avoid PMS while high net worth individuals can explore as it provides a customized investment opportunity by professionals.
Do check the SEBI guidelines for PMS and address if you want to lodge a complaint by going here.
@TheWealthWisher,
Good analysis, i did shortlist Sharekhan & Religare PMS few years back but their charges were too high so i decided against it. A couple of my friends did invest in Religare PMS but suffered badly. Their portfolio manager did day trading without their knowledge. Not sure what was signed on the whitepaper……
Can they do day trading without informing the client ? That is atrocious !
@Radhey,
That’s right, my friend lost 50k in one week. His PM@Religare did day trading is some stocks to make quick bucks.
how is equity intelligence company of porinju.. anyone has tried it? how is the feedback
I think this concept is very good but only for few % of investors. It’s like creating your own MF, it’s interesting as one can customise it personally.
If you know a good PMS Manager and can trust then go for it, the only thing is your mind should be prepared for losses as this is to explore and enjoy the high risk high return. Normal investor better not to go for this and people having some knowledge better manage themselves. People having huge asset, less time and want to explore can assign some % to PMS.
Exactly Chirag – investors should be prepared for losses in PMS. I personally think it is a scam.
Good and Trust are two words that you cannot find in todays financial industry.
I think people with limited or no knowledge of stocks should stick to MF, do not venture into stocks there is a lot of risk involved and your capital could erode fast. Till date I have not come across a PMS who are willing to share losses. When dealing with Sharekhan and Religare i had put this question to them but they backed off.
I don’t think I can trust anyone so much with my money. I think people have enough financial problems in their lives, going for PMS is like adding another one to the list, a major one!
You are right when you say it is a scam. However, an interesting business prospect!
i had invested in Geojit around 10 lakhs the year 2011 sept when the sensex was 15000 and when i came to 20000 i withdrawn my PMS with a big loss. this is what PMS giving 20% profit ..bullshit ..only we can be carefull of our money not somebody else. Please be care full
Agreed – how much loss did you suffer ?
You mentioned PMS route doesn’t make sense unless it beats market by 5-7%. Anyone who can claim beating market by 5% consistently is no less than God. If fundamentals were so easy then there will be many Buffets or Jhunjhunwalas.
Its like bowling yorker at right speed on right spot is no rocket science. Some IPL teams have Donald, Akram as bowling coach. Then a Nehra will always be Nehra.
hahaha, well said Dip – A Nehra will be a Nehra.
Completely support your views, these PMS services are just to misguide people and make money for themselves.
Not all PMS services are bad, my neighbor does through Integrated services and he is quite satisfied.
All of us were satisfied with LIC until we got the financial insight. I hope your neighbour has taken an educated decision and knows what is happening with his money.
Then how much shoudl one expect from PMS ? If they give returns like MFs, I would rather go with MFs. PMS have to give a large rate of return to survive the concept.
Or are you saying returns in line with the market are acceptable ?
@TheWealthWisher,
PMS should deliver more returns than MF. If PM can deliver 20% returns in a year on a consistent basis then i would think of approaching them. However if wants a share in my profits then he should be willing to share losses too.
20%..?? Really!!
Please share the details if you find any such entity.
Anyone show me a 20% guy or instrument for next 20 years. I will sell everything and put my money in this. I will never work for a living.
Motilal Oswal, Sharekhan PMS team assured me 20% returns, when i told them to put in the agreement they backed off saying that market is in-predictable and we cannot put it in paper.
@Rakesh, Such assurances are given at every nook and corner of this country. There are assurances to double the money in one year but such things don’t count.
You are perfectly right when you say that the PMS is not meant for those faint of heart. The quality of PMs today is generally quite poor. Everyone talks big things but ask them to put it on paper and they will all simply back out..
There’s a reason why most successful investors are those who manage their own money.. And that’s because there is a no paid PM piggybacking on their hard earned savings. Agar Kamaya khudne hai toh khyaal bhi kyun na rakhe hum hi? You have to learn how to invest in stocks yourself to make money work for you!
Well said Manika. For people who are going to PMS and losing money I’d like to extend your statement: –
“Agar Kamaya khudne hai toh khyaal bhi kyun na rakhe hum hi?,
Agar khayal nahi rakh sakte to gwayen bhi kyun na hum hi” 😀
Guys, who all do investing on their own resaearch and can’t trust PMS ppl….. there is a resourseful site http://www.QuantsPartner.com
excel Modesl placed on this site and the 2 minute PDF is helful.
We did start our own PMS service and soon realised that it may be a way to make money over the gullible clients. The moment that realisation came in, we stopped this line of service immediately. The insiders which I came to realise were :
1. PMS tie up with brokerage houses whereby they charge a client X% brokerage and their cost of brokerage is y%. They get a kick back of (x-y) from the respective broker.
2. Just with a small tweak in the way the PMS charges the fees, can mean a lot of more money for the PMS and lot more hidden charges for the Investor. Not many PMS go for the average assets..
3. Some PMS take a % of the profits as of a particular date, whether encashed or not. If the profits are not encashed (notional profits), and the markets sink, the PMS does not refund back the charges.
4. In order to earn more brokerage kickbacks, PMS tend to churn the portfolio of the client more than what is required… hence taking on more risk then justifiable.
5. Taxation aspect associated with the portfolio is last of their priority. They would churn the portfolio to ensure they get brokerage kickback, which may hit the investor on Short Term Capital Gain Taxes !
My suggestion to all investors – PMS is a way to make PMS companies rich ! Better go for mutual funds.
Regards
BanyanFA
Very useful BFA, keep it coming.I did not know about point 3 at all.
Point 4, 5 are so true, that is where everyone gets cheated.
Thanks for the useful contribution.
Thanks 🙂
We invested 5L in sharekhan PMS in 2010 and by 2013 it was reduced to 2.54 L and with heavy heart we closed the account bearing the heavy 50% loss of our hard earned money . Thorough mis management, lack of knowledge and skill from their side accounted for this poor performance where nifty and almost all MFs performed much btter than them.NEVER go for sgarekhan PMS … we learnt it most painful way of heavy loss…
My 2 cents from my own experience with Equity Intelligence PMS, Kochi run by Mr. Porinju.
I invested 5 lakhs in 2007, which grown to 8 lakhs in 2008 before touching down to 2.5 Lakhs after 2008 stock burst to doom. However they came back strongly in 2009 and I closed account with value of 7.8 Lakhs in early 2011. That’s about 60% profit in approx 4 years, which takes into account 2008 crisis too.
I am not marketing their SMS but their stock analysis was really good. However, one thing that always baffled me was why they keep sitting on stocks in 2008 when it was going down. Even a novice like me was able to share some stocks from my own portfolio booking some profits. And they have no correct explanation.
Hi Friends,
I know all have a bad perception regarding the PMS Schemes which is provided by the brokers in Indian broking Industry. I want to tell you all that i am not from any broking house or any other PMS company or i am not writing comments on behalf of anyone to change the thinking of investors. I am a investor like you from 2007. We all are buying homes to stay for a longer period at least for 20-30 years or buying any car to use for 5-6 years but why can’t we buy blue chip stocks those who have very good business prospects for 5-6 years. There is an Individual who is guiding for the stock investments and assures minimum 18% return per Annum. If don’t have any trading account then you need to open the account where ever you want and inform the Individual. He wanted at least the account should have minimum balance of 1lakh and at least you should get invested at least for 3 years. He is charging yearly 3% advisory fee of the total amount invested in your account. I am giving an example below.
Amount Invested 1, 00,000.00
After 1 years says your fund vale is 1, 35,000.00
Then its 35% return. Out of this there will be a profit sharing 25% on the excess return earned upon the guaranteed return. Here the guaranteed return is 18%.
Excess return earned is 35-18=17%
So the advisor sharing is 25% of 17%. that is 4.25 % that is 1487.50 and the management fee 3% of (1lakh)=3000.00
So total expenditure of your portfolio is (3000+1487.50) =4487.50
Clients profit=35000-4487.50=30512.50
So yearly rate of return is 30.5%. Which is double than you MF return is not it ?
If your account is not giving positive return then they are not going to take the management fees.
Now I will explain the loss part that is if your fund is giving negative return at the end of the 1st year then you have
at the end of the 3rd year he is assuring to give you the return in the compounding interest rate that is equals=1,64,303.00. If the fund vale does not reach that level he needs to get invested for some more time as per the advice from your advisor. And i am sure in the long-term it will give more that what you expect.
Dear Krishna,
You are right, we need to prepare our mind to look for longer term to get good returns instead looking for short term.
Can you suggest any good PMS which i can safely invest.
Thanks and regards
Parthasarathi
+919886393501
hii can u tell me what pms are u talking about
Hello Krishna,
Can you please tell me the details of this PMS, so that I can contact them.
Dear Harsh,
If you go through the comments you will get the names and their website can tell you details. My request is you should read whether the PMS investments are any worth to your investment strategy? A lot of PMS have not delivered what they promised. A lot of them didn’t disclose what needed to be told. So go through all fine prints and then make the choice. Honestly my opinion.. avoid them.
I had bad experience with Motilal Oswal PMS. They charge too much. They charge performance fee even when I lose. They want to share profits but not loss
Satyen ..Can you elaborate on your experience with Motilal Oswal PMS, I guess they have a fixed portfolio and do not do much churning. How was your experience with them ?
PMS companies, especially ALCHEMY Capital, have very high percentage charges. Their management fee and “other charges” will significantly erode your portfolio. Do not go ALCHEMY Capital or any other PMS. Mutual funds are much better and provide greater flexibility too. AVOID ALCHEMY CAPITAL PMS.
I had to bite the bullet and close ALCHEMY Capital PMS with a loss of INR 2.4 lacs and significant management fee, audit fee, custody fee, exit load, other fee etc etc. Stay away from ALCHEMY Capital PMS.
Hi all,
It was great going through all the posts.
I, until now, have been managing my portfolio on my own.
Recently, i have been thinking of using PMS by Motilal Oswal. Their CAGR since inception ( 2007 ) shows around 19%, after deducting their PMS fees.
This sounds steady & lucrative for the long term.
But I also needed to make some reality check.
What do you guys suggest ?
Regards,
Mukesh
Hello All,
Thanks for many useful posts!! I also wanna use PMS for my equity, can anyone suggest good PMS agency/broker for this. Mr Krishna your post was very good, can you help me in getting such service? You can contact me by email at prakashkashyap1999@yahoo.com Thank you
Dear Mr Prakash,
At the moment I am not in capacity to advise a PMS agency or a broker. my apologies for that, but i have noted your contact will come back to you once i am equipped to do it. Thanx..
Equity intelligence PMS service is too good
I have been thinking of investing through PMS for some time now. Thread has provided pretty good insight into the situation on the ground. Investing through Mutual Funds only for some time. Tried directly investing through shares and made some money also but lack of credible data and access and also lack of time both puts one off, so switched back to MFs. If somebody can suggest a good PMS?? Somebody told NJ is pretty professional in their approach.
Sriraaj…. the term ‘Too Good’ in your comment, what does it suggest ? Are you an active client of EQ. Intell. firm ? What is their track record ? pls tell a spade a spade and pls dont make bubbles of words. We need clear and transparent opinion based on real figures… They claim that they had turned 10 lakhs into 3 crores…. Now say……… friend…..
Hai all,
The feedback given by each one is good. Past few days, one person is insisting me go for PMS. Options given were Motilal Oswal, Alchemy n Birla PMS. Can anyone suggest whether I should go for a PMS
Hello All,
All the posts regarding investment in PMS are very helpful. I am also thinking of investing through PMS.
Can anyone suggest me of some good service?
I was planning to invest in Motilal oswal PMS, if anyone already using the service can help me out?
My email : jain.hitesh31@gmail.com
Hi, Hitesh… I am of a bit different view. If you take the cost associated with the product, the most economical and somewhat similar is mutual funds. Also, the level of transparency is high with mutual funds. So I would recommend a PMS if the investor already has MFs portfolio, say above 2 Crores of assets and looking to invest in a different theme not available with MFs.
Hi Madhupam Krishna,
Thanks for the reply…according to you which investment would give me best returns?
I already have invested in MF through SIP installments but the appreciation is not as much required. Can you help me out with the proper investment strategies.
My email
jain.hitesh31@gmail.com
Hitesh,
I will answer your queries one by one.
1) Investment for best returns: I am assuming that you are looking for long term returns. Equities and only equities will give above inflation returns. Stick to good MF equity funds and keep on building your portfolio.
2) Returns from SIPs: the SIPs are for long term generally 10 Years plus. So to judge their performance for last one year or two due to overall markets not growing, is not right. Stick on to you SIPs and you will have very good returns in future.
3) Proper Investment strategy: The best strategy is to follow these steps: Goal Planning exercise, Risk Assesment, Portfolio building using Asset Allocation as per requirements of different goals identified.
It is always best to engage a Financial Planner instead of DIY (doing-it-yourself) in piece meals.
Very informative blog.
Thanks for all the information.
I just signed up for a PMS service. Observed the recommendations for the last 18 months and expecting around 25-30% net returns on long term.
Will post my experience after a few months.
Thanx for liking the post… do share your experience with this PMS.
Hello All
Thanks MadhupamMadhupam Krishna for your reply.
Can you suggest whether stick with MF or go for PMS service?
How much returns can one expect if everything goes well?
Hitesh … I would suggest to stick to MFs unless you have 2 Cr plus equity investments in Equity MFs and still looking to diversify. Equity MFs have a large base and same can be used to invest. Indian Markets have made alpha over benchmarks and same can be expected if everything goes well as you mentioned. Specifically the portfolios are of wide range and variety so putting a range on returns is not wiseable.
PMS’s mini ticket is too high-Rs 25 lacs, so in case of small investors the risk involved is too dangerous. Also their management fees & other charges altogether amount to 3-4% in case it’s fixed charges one (i.e. I mean not of profit sharing variable, after some pre-decided hurdle-mini profit %, beyond which only the PMS provider will take his share) But the MFs too charge substantially although those details are not evident being part of NAV calculation. Many time, we venture into investing into equities of our own & incur loss, but don’t talk about it ( generally we listen only people boasting about how they earned so much profits from a particular scrip-people shy away from saying they lost money), whereas when any MF /PMS ditches you, we make too much of noise-it’s like when a child in creche swallows a small ball, you sue the nanny but when it happens in your home while mother is busy in kitchen & father in reading newspaper, you don’t blame any- possibly only the child itself. One can avail Financial Advisory service from TATA CAPITAL @ Rs 2500 p.a. where you get you folio viewed-similarly if you hold too many not so good performing shares, entrust the folio to some good PMS- Motilal/BSL/ICICI that too for some 3-5 years & with no profit sharing scheme having their folio comprising Large caps. Otherwise invest in Debt Fund & start SIP to any Franklin MFs (yes, only foreign players are responsibly handle it-unfortunately, Fidelity have gone) all your money in excess of your expenses
I agree with what you say mostly but MFs have lower cost then PMS and this is a time tested fact now. Also MFs score on disclosure parameter. Hence, PMS is advised once who have exhausted MFs and still looking to diversify. You are also right to say that people refrain from silly mistakes they make. The services to just review your folios are offered free of charges by many advisors but you should recheck whether he is unbiased or not. You mentioned that equity investments should be for 3-5 years but I think it should be over 5 years plus horizon as per your risk profile and goals. You also mentioned that only foreign players in MF are serious- The industry is now 20 years plus (not including UTI days) and track record speak for itself. DSPBR MF, HDFC MF, Reliance MF, Birla Sunlife MF and others few have made money for their investors.
I AGREE EQUITIES/MFs should be held for over 5 years period. about credibility of fund managers- in some 7- 10 years before, many of MFs had foul played & only Tata MF sacked such people. The ranking of MFs is quite changing in case of purely Indian MF house & during recession time, the -ve return, only in certain MFs, like Quantum, Fidelity & Franklin was under control. You say go for PMS after one has exhausted with MFs-but how to fix that threshold. Basically, question of PMS, arises because we of our own judgement/tips etc. have bought scrips & yet do not know how to come out these investment asset class with some reasonable profit. While availing service for reviewing our folio, the service provider shouldn’t be insisting to buy any product from him/ a party known & recommended by him. Direct MFs is a solution because any new distributor would like to earn by telling to switch, even if the Fund is good he would say switch from Growth option to Dividend or vice versa. Nothing is available for free. But SEBI should CHECK ON the charges levied by PMS, since apart from Management Fee, some 0.50% fee is levived by way of AMC, BROKERAGE, A/C MAINTENANCE, AUDIT & the worst part is UP FRONT CHARGES. In fact, if Fund Houses come out with alerting the investor upon reaching, say 20% gain, the investor would never loose money on quitting the said MF by switching/redeeming & in the bargain MF Industry in general would get much better business & the MF in particular would not loose the name.
Hi all. I am a would be investor on the lookout for the best way to evaluate PMS and went through all comments and writings with zeal. it was very good reading all insights and experiences. Of course, Opinions, Impressions, Beliefs etc voiced would vary in such scenario. The moot question whether PMS, given all its pluses & minuses are worth while and a better vehicle to achieve set goals and desirable results still hangs.
Nothing clear has emerged. Except by Krishna of a private investment adviser similar to a PMS Manager, whose details have not been shared. Another thing, if a PMS is to be considered or is considerable ONLY if you develop over time say, in few years a corpus not less than 2 Cr, it means you are already a good Manager yourself and you definitely don’t need a PMS.
I feel PMS is for those that don’t have either any insight OR experience OR time AND /OR ANY inclination to delve into the Market Maze. They are willing to pay a reasonable price as service cost to someone to act on their behalf. Returns and extent of returns in particular, are factors of the expertise of this service provider. Given the various question marks on adequate expertise, reliability to unflinchingly keep the Client’s interest supreme and a tendency to fleece the client, the million dollar question is who should be this PMS.
Thus, in my opinion the question is not whether PMS is the right way or not. As pointed out above, it is right for some and in certain situations. It may not be right for some others. Those that have the experience and time to handle their portfolios certainly don’t need them. But for those that need them, the important question is WHO is the right PMS ? ?. How to find and make a judicious judgement.
Shall be thankful for responses.
Dear Arun,
You are right when you say PMs is for an informed investor. In fact, knowledge is a must for investing in any capital market scheme whether MFs, PMS or Direct Equity. By knowledge, I mean the basic knowledge about equity investments. The details are left to fund manager in all the cases. I wish to clear that, whether you have the time or not, the starting point should be mutual funds as these are highly regulated, transparent, low cost and flexible. PMS is for investors who have graduated and reached a stage where they have surplus money and still looking for more diversification or discretion in their portfolio. The cost of PMS is more than any other products.
I GREE WITH KRISHNA. But some facts-
1)generally in any situation, one thinks mainly of what charges somebody else is earning for the service rendered than what one gets from the service. We don’t have access to the transparency of charges levied by MF Houses, as also on our mis-judgement, if we incur loss, we don’t realize what’s gone wrong, leave apart the blaming ourselves.
2)The charges & risk factor in PMS could be more than with MFs but the gain could be more with PMS.
Hi Krishna,
An investor with surplus money logically would not or should not mind certain higher cost of PMS if it meets as you say, his desires of more diversification and, as noted and stated by Shrikant higher relative gains. Higher costs are justified if it fits the cost benefit test. The impression gathered is that PMS are perceived to fetch better gains and certainly portray that evaluation. Hence, PMS cannot or should not be considered unfit merely because of some higher percentage of cost of transaction.
But not to digress, a qualified response on how to evaluate and select the best or say an optimum PMS is still awaited.
Have we all were not victim of mis selling some time in the very old past because we believed that time that we can judge for ourselves on hearing the seller. This how we learn & get gradually matured in selecting/exiting right products of investment No PMS or any product presenter assures you of gain, which is one’s fate. One need to share one’s money to the society (finance industry included) around-one is not allowed to use it 100% & merely for self
Very informative blog.
I’m just thinking to sign up for a PMS service – Motilal Oswal.
How are your experiences with this Oswal services? Any suggestions pls…
Thanks,
Vivek.
Hi Vivek,
Thanx for liking our efforts.
Regarding PMS, our first advice is to invest through Equity MFs. This is for the reason of simplicity, product range, accommodating small amounts of savings and transparency. When you have a sizeable equity MF portfolio and still looking for some more option, you can look at PMS. Also, investments in equity MFs give you an understanding of how equity as an asset class work. MFs are basic and PMS is advanced for more refined investors/HNIs.
Thanks krishna..!
Thanks for all info on this thread.
When I want to invest in Equity via PMS, Money goes to PMS provider Account, then they buy shares and shares get credited to My Demat Account. Same happens when they sell. Money goes from NSE/BSE to PMS provider Account and then money comes to my account whenever i opted to EXIT PMS.
Is there any risks involved during this transition. So basically i have to trust PMS provider during this transision, am i right, Any help on this appriciated.
Regards
Hi, Selvi… The real buck starts when PMs receives your money. They “trade” with your money in equity cash and derivatives. The returns depend on this trading. My suggestion is that you first start investing in equity through equity mutual funds. This will help you learn equity investments. MFs are simple and basic while PMS is advanced, less transparent and HNI money driven product. Once you build a sizeable portfolio you may go for PMS in latter stages.