What is a Portfolio Management Service?

Portfolio management services are provided by corporate intermediaries to enhance the value of a client’s underlying securities. They are not investment services, however, and simply play an advisory role, which is executed by a portfolio manager. As per SEBI stipulations, any individual who contractually guides, analyses or undertakes the administration of a client’s securities is a portfolio manager.

A professional portfolio manager is ethically bound to administrate his client’s funds prudently and to make carefully reasoned decisions in choosing investment channels for his client. Ultimately, his aim is to do with the portfolio what is required by the client, which in most cases means high returns or liquidity.

There are essentially two types of managers. These are discretionary and non-discretionary. In the former, the investments lie at the discretion of the portfolio manager. The client plays no role and cannot intervene in the course of the investment. The latter is simply the opposite. The portfolio manager simply advises the investor, who makes the final decision.

Mutual funds and PMS are similar to each other, in that they acquire money from investors and pool it before proceeding to invest them in various securities. However, there are a few differences. These are targeted to high-net investors whereas mutual funds remain the domain of smaller, retail investors. Also, mutual funds not pay specific attention to the individual client’s securities. The returns on a mutual fund are simply divided in proportion, whereas it manage every portfolio separately.

Income that is derived through it is, unlike mutual funds, treated at business income and is taxed at an individual investor level. One is not required to retain at least 65% of the dividend through a portfolio management service in equity funds to avail of tax benefits.

Like all aspects of finance and investment, these services come with certain disadvantages. For one, it remains a very elitist means of investment, with the target market being seriously cash rich individuals. While SEBI regulations require investors to have at least Rs. 5 lakh worth of securities to avail of PMS, most professional services themselves accept portfolios that are much more valuable. The average range of such portfolios can be anything over Rs. 20 lakh.

While having your portfolio professionally managed might seem tempting and rewarding, there are serious preliminary considerations to be made. PMS can be expensive to avail of, and it is important to be sure of what your investment goals are, in the long-run and short-term, before opting for a portfolio management service.