• PMS is registered by the SEBI market regulator.
• PMS deals with Equity and debts.
• PMS services are availed by banks, brokers, independent investment managers, or AMC (Asset Management Companies).
• Actually, it is a kind of a drawback for retail or normal investors because PMS suits only to those who have a large affording power or who is a wealthy person. The PMS charges a large percentage of money from its users which are not within the capacity of a normal or average class investor. There are so many PMS in the markets that are providing such services. Their charges to manage your portfolio would really vary. Some charge 2.5 percent of the fund size, while others charge more.
• The minimum investment required to open a PMS account is Rs. 50 Lacs. However, different providers have different minimum balance requirements for different products.
• The service providers have different models portfolios for the investors which the investors can choose as per their financial goals and requirements. They can even customize them if they want some additional or want little adjustment.

When such attractive facilities are provided by the PMS then why not we will bother to know about the names of those PMSs. In the upcoming next subtopic, you will see the best performing PMS in India and also come to know about their deep insight details.

There are three types of Portfolios in PMS, you can choose any of them-

• Discretionary PMS– Discretionary Portfolio provides the service provider a right to make decisions on behalf of the client, whether he wants to sell or buy the shares. He is not bounded to consult with the client.
• Non-Discretionary PMS- This is the just reverse of the above. Here, the service provider consults with his clients on investment decisions or buying and selling of shares before transacting any event. The decision making power lies in the hands of the client only. The service provider can advise and assist them with things, but the final executions will be done according to the client’s order.
• Advisory: Only advice is given. No execution.

It is to be kindly noted that most PMS provides Discretionary portfolios in India.

"The performance of the Portfolio Manager (PM) has not been approved or recommended by SEBI nor SEBI certifies the accuracy or adequacy of the Monthly Report. The monthly report of the PM has been prepared by the individual Portfolio Manager as required by SEBI. The monthly report, inter-alia, contains the ‘performance of the PM during the month’. It may be noted that the relationship between the PM and the client is contractual in nature and the PM mainly provides customized service taking into consideration the need of customers, their preferences, risk profiling, suitability etc. Further, no pooling is allowed and no units are issued as in the case Mutual fund. Therefore, the performance of one portfolio manager may not be comparable with the performance of another."

Advantages of PMS-

• You can transfer the headache of monitoring your shares and taking decisions on those shares part to the experts.
• You get the higher returns with the help support of well-knowledgeable guys.
• The experts manage your full portfolio which will provide your portfolio hassle-free management.
• You get a piece of expert advice across instruments from debt to equity to gold and mutual funds.
There is no limit to the extent to which you can invest in a certain stock. Although, there is the limit to minimum investment and that is Rs 50 lakhs The fees of the service providers for their so-called service are negotiable.
• The experts do not follow or cram the usual investing activities like what people usually do as they invest when the market is rising or vice versa. This is not so with the PMS experts. They take wise decisions and they deeply understand or analyze the market phenomenon. They keep your requirements in their minds and accordingly invests in the segment preferred.

Advantages of PMS-

• The PMS requires a minimum investment of Rs 50 Lakh according to the guideline s of the SEBI. This is a real drawback for small investors who cannot enjoy the services of PMS.
• It shares only the profits, and not the losses.
• The tax implication is the same as what is imposed by normal investing in shares. No tax exemption is entertained here.
• The completion of the document requirement is complex and requires more time.
• You cannot customize the portfolio as per your needs. The only thing is you may have access to more information.

If you wish to invest in PMS, then you have to contact the company service provider and sign certain documents regarding your agreement with the service provider, like- submit the following documents-

• You have to sign a PMS agreement with the provider.
• You have to sign a Power of Attorney with agreement.

In addition to this, you have to provide documents to judge your authority and authenticity. These are-

• PAN
• Address proof
• Identity proofs

Points to be noted-

• You have to open a Demat account, even if you already have one.
• NRIs can invest in PMS of India.
• The NRIs have to open a PIS account for investing in PMS, rather than the Demat account and the documents requirements are also different which are listed by every company.

You can invest in PMS in two ways.

• Either you can invest via cheque or
• You can transfer the shares in the shares which are already held by you in the PMS account but the value of those shares should be above the minimum investment criteria.

See, there are so many individuals in the market who are wealthy enough to entertain themselves with the services of PMS. All have different capacities for doing investments and so they are likely to make investments or pick up the PMS scheme on time variations.

These factors of investment capacity and time variation mainly make the PMS account of everybody unique in itself. Let’s again clearly mention the factors in the following bullets.

• The entry of investors at a different time.
• The difference in the number of investments by the investors
• Redemptions/additional purchase done by the investor.
• Market scenario – Eg If the model portfolio has an investment in Infosys, and the current view of the Fund Manager on Infosys is “HOLD”(and not “BUY”), a new investor may not have Infosys in his portfolio.

However, the investment is done according to the portfolio model chosen by the investor with the PMS Service provider. The customer will get the valuation of his portfolio on a daily basis from the PMS provider.

When you pick a PMS scheme, you have to first open your bank account and the demat account. The purpose of opening such accounts is to transact all the investment activities under your name only.

When you invest in any shares, then the dividend will be credited to your bank account while the shares will be credited to your demat account. In this way, the process continues.

Generally, the power of attorney to handle your bank and demat account lies with your portfolio manager. If you want to view your market status, then you can ask your manager to give your credentials to open the website and track your portfolio performance.

We have talked about the minimum investment required by the PMS. Right? So, this investment has a percentage share of fees also for this service provider. You should see that what percentage of fees is charged by these service providers out of your total invested part.

• Entry Load– There is the exit load that is levied if the customer chooses to exit the PMS before a threshold of 1-2 years.
• Management Charges– This is a service charge for managing your portfolio. It may vary from 1-3%, depending upon the service provider. It is charged on a quarterly basis.
• Profit Sharing Fees– If a PMS has profit-sharing agreements between the client and provider, in addition to other fixed fees, then this charge is based on such terms of an agreement.

Apart from the charges mentioned above, the PMS also charges the investors on the following counts as all the investments are done in the name of the investor:

• Custodian Fee
• Demat Account opening charges
• Audit charges
• Transaction brokerage

PMS investing is suitable for the following:

• High net worth who can afford to invest at least INR 50 lakh in PMS.
• Investors with high-risk tolerance levels and who can tolerate high volatility and uncertainty in their portfolio.
• Have a long-term investment horizon and do not need regular income or liquidity from their portfolio.
• Investors who want professional portfolio managers to manage their assets. And are comfortable with delegating investment decisions to them.

Portfolio Management Services (PMS) can be an attractive investment option for those seeking professional management, personalized strategies, and access to exclusive investment opportunities. However, it is essential to consider the pros and cons, including the high minimum investment requirement, before committing to PMS investing. Diversifying with PMS often requires a significant investment amount, which may not be suitable for every retail investor. In such cases, mutual funds offer a more accessible alternative, allowing retail investors to achieve diversification with lower investment requirements. As with any investment, thorough research, assessment of personal goals, and consultation with financial advisors are crucial steps to make an informed investment decision.

For PMS investors, the taxation framework is akin to the taxation of capital gains. Unlike mutual funds, which enjoy the benefit of Section 10(23D) of the Income Tax Act as a pass-through entity and are not subjected to taxation, PMS transactions are executed directly from the client's Demat account. Consequently, the returns generated through PMS are treated as capital gains earned by the client on their equity activity, and the PMS taxation is based on this premise.

Capital Gains vs. Business Income

An important consideration in PMS taxation is whether the income should be categorized as capital gains or business income. PMS, unlike mutual funds, is not treated as an intermediary. PMS transactions are regarded as buy and sell transactions within the client's Demat account, executed by the PMS based on their best judgment. The classification of income for PMS aligns with the same principles governing normal capital market transactions.

Since there is no specific provision outlining PMS taxation, the principles governing the taxation of profits from share transactions, such as volume, frequency, intention, and holding period, among others, guide the classification of PMS income. However, it's important to note that despite legal cases, judgments, and precedents, the matter remains open to debate. Therefore, it is advisable to adopt one justifiable method for reporting PMS income (either as capital gains or business income) and consistently adhere to it.

Deductions for Service Charges and Fees

An intriguing aspect of PMS taxation pertains to the admissibility of deductions for service charges and other fees paid to the PMS. The treatment varies depending on whether the investor reports PMS income as capital gains or business income. If the income is classified as capital gains, such expenses are not admissible. However, if the investor categorizes PMS income as business income, these expenses automatically become admissible.

Given the ambiguity surrounding PMS taxation, it is advisable to seek legal opinion and maintain consistency in the chosen method for reporting PMS income. This approach can help mitigate potential disputes or uncertainties.

PMS Ownership Structure
In PMS, investors directly own the stocks within their portfolio. In contrast, mutual fund investors own units of the fund, which indirectly represent ownership of the underlying securities.

---

Customizing PMS
PMS allows for highly customized investment strategies tailored to individual investors' risk profiles and financial objectives. Mutual funds typically follow a standardized investment approach based on scheme objectives.

---

Exposure Restrictions
Mutual funds often have exposure limitations, such as a cap of 10% of Assets Under Management (AUM) in a single stock. PMS, however, does not typically impose such restrictions.

---

PMS Fee Structure
Mutual fund fees are fixed and built into the expense ratio. PMS fees can vary based on performance and individual client arrangements. Mutual funds offer a low barrier to entry, with minimum investments as low as Rs. 5,000 for lump-sum investments and Rs. 1,000 for Systematic Investment Plans (SIPs). In contrast, PMS typically requires a minimum investment of Rs. 50 lakhs. In mutual funds, your money was pooled into the money of other investors and you gain only the units in the fund. In the PMS, you directly own the shares of the company.