All you need to know about Portfolio Management Services

Portfolio Management Services (PMS) is a specialised service that offers a range of specialised investment strategies to capitalise on the opportunities in the market.

Investing requires knowledge, time and the right mind-set. This is besides constant monitoring. PMS gives you professional managers who strategise to deliver you consistent returns keeping your risk appetite in mind. Every portfolio manager has a well-defined investment philosophy and strategy that acts as a guiding principle.

PMS relieves the investor from all the administrative hassles of investments. You receive periodic reports on your portfolio performance and other aspects of your investments. Investments are tracked continuously to maximise returns.

In a PMS setup, your relationship manager defines your financial goals and advises you the right product mix. They give personalised service and ensure that you receive periodic updates and account performance reports.

Here are some of the most frequently asked questions about PMS, answered!

What are the advantages of investing in PMS vis-a-vis mutual funds? 
You have greater control over the asset allocation in PMS, whereas it is automatic in mutual funds. The portfolio can be customised to suit your risk-return profile.

The PMS portfolio manager also has relatively greater flexibility to move in and out of cash as and when required depending on the market view.

How can I introduce my initial corpus to portfolio management services (PMS)? The initial corpus can be brought into the PMS ambit by way of either cash and/or securities. The initial portfolio of securities will be re-aligned as per the desired investment model.

Does PMS guarantee the initial corpus and any return thereon?
Returns cannot be guaranteed as per regulations governing portfolio management services in India [ Images ].

What is the difference between discretionary and non-discretionary Portfolio Management Services?The discretionary portfolio manager will independently manage the funds of each client in accordance with the needs of the client. The non-discretionary portfolio manager will provide advisory services enabling the client to take decisions with regards to his portfolio.

Is the payment upfront?
Yes, payment is upfront.

Does portfolio management services have any lock-in period?
There is no lock-in period according as per regulations. But some companies may have a lock-in period depending upon their company polices.

What are the tax implications of investments in PMS?
Each PMS transaction is considered an independent trade and capital gains will be applied on each depending upon whether the relevant stock was held long-term or short-term. At present, 10 per cent tax is chargeable for short-term capital gains and no tax is chargeable on long-term capital gains. Securities transaction tax (STT) is also applicable.

What is the fee structure for PMS?
The fee structure depends from company to company. There may be many options such as:

• A fixed proportion of the fund amount (for eg 2 per cent of the initial corpus)
• A fixed proportion of the fund amount + variable depending upon the performance of the portfolio (2 per cent above 10 per cent of the returns)
• Variable depending upon the performance of the portfolio

Can I withdraw my profit any time?
It completely depends if your PMS has a lock-in period or not. If not, you can withdraw your profit as and when you want, provided you maintain the minimum ticket size. If you have a lock-in period, you will have to either wait till the end of the lock-in period or pay the exit load.

Investment planning tips for 2010

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

3. Create a budget and track your expenses

A budget helps you break down your spending and compare on a month to month basis. Thus it helps you identify areas where expenditures can be cut and money diverted to meet your goals like buying a car or house. When you look at your budget and see anomalies, it becomes possible to take remedial action. Do not procrastinate on this

4. Make your PPF and other fixed income investments at the beginning of the financial year

If you invest in the latter half of the year, you miss out on a good amount of interest income. Investing early in the year will tie-up your money which will also help you control certain discretionary expenses.

5. Invest in insurance policies

You can get life cover, child education cover, health cover and save for retirement when you invest in the right insurance policies. Besides this, you get tax exemptions to reduce your current tax payout. This exercise should be done in the beginning of the financial year so that your tax planning can be taken care of. Remember that choosing the right insurance policy can be a tricky exercise and you might need to take assistance from a qualified financial planner.

6. Buy a house

• A house is one of the best investments you can make and it offers many advantages:
• You save on the rent
• Your interest payments are tax deductible
• It usually appreciates in value
• In times of need it serves as great collateral
• Peace of mind and many other intangible benefit

7. Determine your asset allocation and diversify

This involves matching your investment vehicles with your investment goals. Your investment choices should always be based on your age, portfolio, personal situation and level for risk tolerance. Diversification is the key to minimizing risk. You should not put all your eggs in one basket. Real diversification means spreading your money across multiple asset categories including stocks, bonds, real estate and commodities etc.

8. Rupee cost averaging

If you invest directly in stocks then rupee cost averaging is one technique you should look at adopting. It is similar to SIP for Mutual Funds. You fix certain amount of money for a stock and buy at regular intervals regardless of the price. In this way when the prices are low you get more units and vice versa. The key here is to select quality stock for the rupee cost averaging.

9. Don't be obsessed with tracking your portfolio

Stay invested for the long term and don't allow every downward market move to rattle you. It's far too easy to panic when you're watching daily, weekly or monthly results. Too many trading tips, recommendations etc only confuse you. Investment is like a test match and not a T20 match.

10. Don't wait. Start now!

One of the mistakes we do is waiting for the right time as well as a lump sum amount to start investing. Being slow and steady wins in this case. Start small but start now. All you need is self discipline to stay on course!