WHAT IS A PMS?
PMS are specialised investment vehicles which manage customised portfolios for clients and invests money in shares and other securities.
TYPES OF PMS
There are two types of PMS – Discretionary and Non-Discretionary.
1. Discretionary PMS
A discretionary portfolio manager manages a portfolio based on the investors' suitability and takes have the discretion to take portfolio decisions without consulting the client. The investors have practically no control over the portfolio decisions.
2. Non-Discretionary PMS
In the case of the non-discretionary portfolio, the manager manages a fund based on an investor’s direction. The investor is much more involved in the portfolio decisions.
HOW IT IS DIFFERENT FROM MUTUAL FUNDS?
PMS are fundamentally different from mutual funds by offering customised portfolios. Mutual Funds can be chosen based on the suitability but mutual fund schemes are not created keeping the suitability of one investor in mind whereas PMS generally offers complete suitability to an individual investor.
The fee structure of a mutual fund is predecided (at the time NFO) and there is only one fee reflected by the Total Expense Ratio (TER) apart from optional exit load. Whereas the PMS fee structure is negotiable and often includes a Performance Fee apart from annual fee (which can be zero or negligible). The Performance Fee may be with or without hurdle rate (ex. Performance fee payable only if the return is more than 8% or more than some benchmark) and also with or without a high-water mark (performance fee payable only if the portfolio value is more than the last year’s closing value).
Mutual Funds are regulated under the SEBI (Mutual Funds) Regulation, 1996 and PMS are regulated under SEBI (Portfolio Managers) Regulations, 1993.
The minimum investment is a mutual fund scheme is somewhere around Rs. 500 to Rs. 5000 whereas as per SEBI (Portfolio Managers) Regulations the minimum investment is Rs. 25 Lacs. PMS also allow the initial investment in the form of financial securities.
The number of securities in a mutual fund may vary 30-40 or more. Whereas, a PMS hold much less number of securities (10-15).
As it is understood from the above that mutual fund is a mass-market standardised product whereas PMS are personalised investments services for the High Net Worth or Ultra High Net Worth investors.