Choosing the Right PMS to Grow Your Wealth; Guide For Affluent Investors

New Delhi (India), March 9: Portfolio Management Services (PMS) have become a preferred investment for affluent investors in recent years. Between June of FY19 to June of FY24, PMS assets grew at 26% and manage around Rs. 15 lakh crores as of Feb 2024.

The personalised service investors of PMS get due to the high-ticket size (Rs. 50 lakhs minimum investment) is one of the primary reasons for the growth of the PMS industry. Also, portfolio managers are not bound by strict risk management principles like mutual funds which gives them the potential to deliver higher returns by taking higher risks.

However, most investors simply invest in the most trending PMS (the PMS with the best 1-year performance) and regret their decision soon. Instead, PMS selection should be done based on several factors. We look at some of the important ones in this article.

Investment style

Just like mutual funds, Portfolio Management Services have categories based on market caps like large cap and mid cap as well as investing styles like value and growth.

Moreover, each portfolio manager brings in his personal style of the PMS. Some portfolio managers may rely more on company specific information while others may rely more on macroeconomic factors.

In short, each PMS strategy has its own way of approaching the market. It is critical to understand it and assess whether it aligns with your risk profile.

Performance Consistency

We started the article saying that performance should not be the only consideration. And yes, that is right.
Performance during one period should not be the only consideration. Instead, you should look for consistent performers. A consistent performer is a better bet than a one-time performer.

Quality of Support and Communication

Investing is an experience. It includes a lot of things - how your relationship manager interacts with you, how comfortable they make you feel and how responsive they are when you have questions.

This can be assessed through publicly available reviews of the PMS or requesting the PMS house to allow you to speak to some existing investors of the PMS.

View sample reports. Reporting is crucial because you want to understand what exactly is happening with your money, where it is going and where it is coming from.
If you realise after investing that you are not able to comprehend the PMS reports, it will not make for a nice investing experience.

Costs and Fees

Investing isn't free. In fact, the biggest drag on your returns are the fees you pay - to your broker, to your portfolio manager.

First, it is important to understand the fee structure of the PMS. Is it fixed only? Is it performance only? Is it a bit of both? What is the hurdle rate, if any? Is there scope for negotiation?

Ask these questions to your relationship manager before you start investing with the PMS to avoid any future surprises.

Next, understand the nature of the strategy. If the strategy involves churning your portfolio frequently, the broker fees can add up quickly. Ensure then that the broker has an affordable fee structure.

Regulatory Compliance and Ethical Standards

Learn about the backgrounds of the key personnel - your relationship manager, the founders of the company, the leadership team. It is very important that they have high compliance and ethical standards and don't have a history of operating in the grey areas of regulation.

This should help you keep your money and personal information safe from fraud and other misuse.

Conclusion

Selecting the right PMS in India is a blend of understanding your own financial needs, evaluating potential providers on various criteria, and ensuring that their services align with your investment goals.

With the right PMS, you're not just investing your money; you're entrusting someone to help navigate your financial future. Make this choice wisely, and it can be a significant step towards achieving your wealth objectives.