Gaurav Sharma has been a successful marketing consultant. Recently, he received a Rs.15 lakh bonus and plans to invest it in equities. His relationship manager suggests a portfolio management service (PMS), where a fund manager offers customised management. Sharma has previously invested in mutual funds, but is new to PMS. Which option will work better for him?
The only similarity between a portfolio management service and mutual funds is that both are managed by professional fund managers. However, PMS offers greater flexibility and customisation than mutual funds. With such a service, Sharma would enter into a separate agreement with the portfolio manager, allowing for highly tailored terms and conditions based on his investment preferences.
Sharma would have the choice between a discretionary or non-discretionary agreement, depending on whether he wants control over his portfolio decisions. Additionally, PMS offers a personalised service and detailed reporting, which will allow him to track daily portfolio developments. Designed for high net-worth individuals, PMS has a higher investment threshold, which may have influenced his relationship manager’s recommendation. However, this alone is not a strong enough reason to opt for PMS.
Sharma must consider that the personalised service comes at a higher cost and expense ratio than mutual funds. Additionally, PMS is not as strictly regulated by the market regulator, Sebi, making it a riskier option.
PMS is best suited for high net-worth individuals, who have a larger investment capital, prefer customised portfolios, are comfortable with additional paperwork, and are willing to pay a premium for the service. For smaller one-time lump-sum investments, mutual funds may be a better option, offering a diverse range of products tailored to different risk and return profiles.
Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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