Comparing Mutual Funds with Portfolio Management Service is like comparing a public transport with a hired taxi. Everyone would rather prefer a taxi than a public transport for the simple reason of convenience and personalized experience of the journey. As a matter of fact, the Portfolio Management Service (PMS) is a part of wealth management service for high-income individuals. PMS investments are targeting high risk and high return assets and typically have an investment in 20-30 stocks. A portfolio manager is more knowledgeable about assets and market conditions, increasing the chances of good returns on investments. However, a Mutual Fund (MF) is often run by an asset management company and represents an investment scheme for a group of people to pool together their money to invest with common objectives.
Advantages of PMS over Mutual Funds
Portfolio management services offer investment services, tailored to meet the financial goals of each investor. Portfolio analysis is comprehensive in case of mutual funds, the macroeconomic factors as well as emerging markets selections while PMS services rely on blue-chip funds and high growth emerging sectors. In portfolio management investor actually holds stocks in the Demat account though the power of attorney can be given to the fund manager. Equity mutual funds are bought in units which in turn represent stocks. Portfolio management services charge an initial management fee and also have a profit sharing agreement.
The Difference of Risk Appetite
An investor with a risk-taking approach is aggressive on equity funds whereas a risk-averse investor would invest in mutual funds offering balanced and less-risky options. PMS allows aggressive investors to invest larger funds in a single stock. In a mutual fund, the fund manager and his expert team take the decisions on how much and where the investors’ money will be invested. Financial advisors in PMS prepare the variety of asset allocations and risk analysis and offer various types of investment products. Mutual funds, on the other hand, offer a generalized and spread out investments with low probability to perform better than PMS. Mutual funds follow the same strategy for all investors irrespective of their capital positions, and ability to take risks.
The Distinctiveness of Portfolio Management Services
PMS can be more aggressive with the potential to generate higher returns in ever-changing market conditions. There are distinct advantages in investing in portfolio management services if the holding amount is large enough to surpass their entry-level investment. It operates with higher exposure to a certain sector or hold on to specific stocks as long as they are delivering growth.
Complete Control for HNIs
PMS is a product created to cater to high-net-worth individuals, which is why the threshold for the investment amount is much higher. PMS provides professional managers to develop strategies for consistent returns within the risk constraints. Most of the time, high-net-worth investors give decision authority to portfolio managers, in order to manage the funds for achieving their individual goals. Every trade is communicated to the investor and even a view of his portfolio positions is available on demand. Investing requires knowledge, time, and the right mindset along with constant monitoring which may not be possible for many. Moreover, the investor can also have his own control over the buying and selling decisions, if he so desires.
Steps to Personalization of Investments
- The first step is to identify the objectives behind the investment.
- Allocation of the required amount from the funds available to invest.
- Listing of assets and securities in aligned with the objectives of the investor.
- Preparation of investment strategy based on the analysis of the investor.
- Monitoring the portfolio continuously and avoiding the diversion from the investment policies.
- Rebalancing it again if the market conditions change sharply.
- Discussion with the investor about the analysis of his portfolio and reporting the status.
The portfolio manager must rebalance the portfolio based on the performance of the portfolio and updated objectives of the investor.
Innovative Products Offered by PMS
PMS offers a variety of investment products considering the specific needs of the client. These are listed as below –
- Concentrated Portfolio – it has only 10-20 stocks of companies with the most promising returns.
- Security Basket – these include carefully selected options, indices, commodities, debt or foreign currencies.
- A structured product – these are also known as market-linked or index-linked investments.
- Principal Guarantee – these products ensures the protection of principal if held to maturity.
- Mortgage Backed Securities – these are used to support in down-market conditions.
Benefits of Portfolio Management Services
This is a highly beneficial service to investors who are either very busy with their own businesses or who lack the technical expertise in investments. A sensible portfolio manager can optimize or maximize the returns on the portfolio either for short-term returns or for long-term goals. It helps in reducing the risk of certain asset classes by proper diversification and asset allocation, the risk of volatile markets can be reduced. The most attractive asset classes come with the riskiest position of values but with proper portfolio management, profit can still be maximized. Customization of the investment is the most sought-after feature of PMS. It enables active management of portfolios in which an investor can take his own decisions on the shares or asset classes he wants to invest in.
Promising Future in India
Portfolio Management Service providers are very popular in global markets. In India, they are still emerging with few players dominating the market. The increasing number of wealthy individuals, most of whom are young and aggressive for growth, will be the decisive factor for Portfolio Management Services. Technology has not left any sector untouched. PMSs are way ahead of mutual funds in usage of advanced technology. They are becoming more capable of analyzing the financial data and their ability to manage huge funds efficiently for desired goals is also enhanced.
