What is a Portfolio Management Service (PMS)?

A Portfolio Management Service (PMS) is a SEBI-registered, customised investment management solution designed primarily for high-net-worth individuals (HNIs). Under PMS, professional portfolio managers build tailored portfolios comprising various assets, such as equities and debt instruments, among others, based on your investment objectives, risk appetite, and investment horizon.

Unlike mutual funds, PMS offers direct ownership of individual securities, higher transparency, and personalised strategies. The minimum investment required for PMS in India is ₹50 lakh, as mandated by SEBI. 

The objective of PMS is not guaranteed returns, but to optimise risk-adjusted performance over a full market cycle through active management and disciplined investment strategies.

How do Portfolio Management Services Work?

Here is how the process essentially works: 

Client profiling

The investor’s financial situation, investment goals, risk tolerance, liquidity needs, and investment horizon are evaluated.

Strategy formulation

A customised investment strategy is designed, including asset allocation, a stock selection approach, and a risk management framework, based on the client profile.

Account setup and funding

A demat account, a trading account, and a dedicated bank account are set up for the investor. Funds or securities are transferred into these accounts.

Portfolio construction and management

Trades are executed by the portfolio manager through market monitoring, research, and active management and rebalancing in line with the strategy.

Reporting and review

Regular performance reports, disclosures, and real-time online access to view holdings and transactions are shared with investors.

Types of Portfolio Management Services in India 

Here are the types of portfolio management services in India -

Discretionary PMS

Here, the portfolio manager has full authority to make investment decisions on behalf of the client without approval. Discretionary PMS is ideal for investors seeking a hands-off approach. 

Non-discretionary PMS

Investment recommendations are made by portfolio managers, but the investor ultimately decides whether to act on them. The manager will implement trades only after the investor's approval. Non-discretionary PMS is suitable for informed investors who wish to retain greater control over their portfolios while still gaining expert input. 

Advisory PMS

Here, the portfolio manager offers only investment guidance. The investor is fully responsible for both decision-making and executing the trades. It offers the highest level of control, suited to experienced investors with the time to manage their portfolios themselves. 

Active PMS

The portfolio manager is actively engaged in buying, selling, and rebalancing the portfolio, with a particular goal (usually to surpass a market benchmark such as the BSE Sensex or Nifty 50). 

Passive PMS

Here, the portfolio manager aims to replicate the performance of a particular market index rather than outperform it. The portfolio will have a composition similar to the index with lower intervention and turnover. It is a long-term and more stable growth strategy.

SEBI Guidelines on Portfolio Management Service

The Securities & Exchange Board of India (SEBI) has issued specific guidelines regarding portfolio management services. These include -

• All PMSs are required to be registered with SEBI
• Clients are mandated to invest a minimum amount of ₹50 Lakhs
• An independent custodian must hold the client's assets, while the portfolio managers must provide detailed disclosure documents and quarterly reports on fees, performance, and risks. 
• Portfolio managers are restricted from guaranteeing returns, and fees should be clearly disclosed and agreed upon, with limits on specific operational/exit costs. 
• Stringent rules apply to investments in related parties/associates, under which portfolio managers cannot borrow on their clients’ behalf. 
• The portfolio managers’ books are subject to audits, with SEBI remaining the ultimate authority for complaints. 

These provisions are outlined in the SEBI (Portfolio Managers) Regulations, 2020, the SEBI Circular (February 13, 2020) on Periodic Reporting, and the SEBI Circular (August 26, 2022) on Related Party Transactions. 

Objectives of Portfolio Management

Some of the core objectives of portfolio management include -

• Capital appreciation and long-term wealth creation

Scaling up the overall investment value over a period of time, mostly through growth-oriented assets, such as equities and others. 

• Risk optimisation via diversification and disciplined allocation

Balancing the returns and risks with diversification throughout asset classes (bonds, stocks, real estate, etc.) to lower exposure to one single asset category. 

• Capital preservation during volatile market phases

Safeguarding the principal investment amount from losses and inflation by deploying safer market instruments. 

• Income generation and liquidity when required

Ensuring sufficient funds to take advantage of new opportunities or address emergencies is a key objective. At the same time, earning regular cash flow from rentals, interest, or dividends is often a major goal. 

• Goal-based asset allocation aligned to investor needs

Distribution of investments across multiple asset classes, based on risk profile, is important. It follows the tailoring of the portfolio to particular financial goals. 

• Tax efficiency and performance monitoring

One goal is to structure investments to minimise or optimise tax outgo, while regularly tracking and rebalancing the portfolio also matters to stay in sync with market changes and objectives. 

Key elements of portfolio management

Here are some of the key components of portfolio management. 

Asset allocation

It refers to the process of allocating an investment portfolio across multiple asset classes, such as bonds, stocks, and cash equivalents.

The goal is to balance rewards and risks by matching assets to specific investor goals, time horizons, and risk profiles/appetites. It is one of the biggest determinants of the portfolio’s long-term performance. 

Diversification

Refers to spreading investments across multiple securities within different asset classes. It is the principle of never putting all the eggs in a single basket.

Diversification aims to lower risk by ensuring that poor investment performance does not affect the entire portfolio. This may involve investing in multiple asset classes, industries, company sizes, and geographic locations. 

Rebalancing

It is the process of realigning portfolios and their asset weightings back to the original and preferred target allocation.

Market movements may shift portfolios' risk profiles over time, and managers seek to manage this by systematically and periodically reviewing the portfolio, selling over-performing assets, buying under-performing ones, or restoring the desired asset mix. 

Portfolio Management Process

Here is a closer look at the overall portfolio management process. 

• Client profiling

This involves comprehensively assessing the client's financial situation, investment goals, desired time horizons, any constraints, and risk appetite. 

• Strategy design

It is the creation of an effective investment strategy tailored to the client's profile. Asset allocation targets are determined throughout multiple asset classes accordingly to meet these objectives. 

• Portfolio construction

This is the implementation of the strategy, in which specific funds, securities, or assets are chosen to build the portfolio. This will ensure alignment with the chosen asset allocation and diversification alike. 

• Continuous Monitoring & reporting

The portfolio's performance is continuously tracked against specific benchmarks and the client’s goals. Regular reporting helps the client stay informed about the portfolio's status as well. 

• Periodic Review & rebalancing

The portfolio holdings and investment strategy are periodically reviewed to account for changes in the market, the client’s financial situation, and deviations from performance targets. The asset mix is adjusted to maintain the desired risk level and achieve the desired goals. 

Benefits of Investing in Portfolio Management Services

Some of the major benefits of investing in portfolio management services include the following -

• Access to professional expertise and research-driven decisions

Professional expertise and active portfolio management form the core of PMS. Experienced fund managers, supported by dedicated research teams, analyse companies, markets, and global trends to make informed investment decisions. The focus is on delivering strong risk-adjusted returns over a market cycle, rather than short-term outperformance.

PMS enables diversification across asset classes, sectors, geographies, and individual securities, helping spread and manage risk effectively. Portfolio managers use structured risk-management frameworks and periodic rebalancing to protect capital, especially during volatile market phases.

• Highly customised portfolios tailored to individual goals

Each PMS portfolio is custom-built based on the investor’s financial goals, risk tolerance, liquidity needs, and investment horizon. This level of personalisation allows strategies to evolve in line with changing market conditions and investor preferences.

• Direct ownership and full transparency of holdings

Unlike pooled investment products, PMS offers direct ownership of securities in the investor’s own demat account. This ensures complete transparency, with real-time access to holdings, transactions, and detailed performance reports.

• Tax-aware investment decisions

Portfolio managers also take a tax-aware approach while constructing and managing portfolios, aiming to optimise post-tax outcomes within applicable regulatory and compliance frameworks.

• Peace of mind for investors with limited time or expertise

For investors who lack the time or expertise to manage their investments actively, PMS offers the convenience of professional management and strategic oversight, allowing them to stay focused on their priorities while their wealth is systematically managed.

Why Should You Opt for Portfolio Management Services?

Here are some key reasons why you should opt for portfolio management services -

• Professional expertise and in-depth research for informed decisions. 
• Customised strategies as per your preferences, age, financial goals, and risk tolerance. 
• Diversified portfolios with regular rebalancing to lower risks. 
• Active risk management, direct ownership of holdings, and complete transparency. 
• Potential for higher risk-adjusted returns, along with time efficiency through day-to-day management delegation, and tax efficiency. 
• Complete regulatory compliance and fair practices for investor protection. 

Who does PMS Suit?

Portfolio management services are more suitable for HNIs (high-net-worth individuals) with at least ₹50 Lakh to invest and those who desire customised and professional investment management. It is not for everyone, due to the potentially higher fees, liquidity considerations, and other factors involved. 

PMS also suits those who lack the expertise or time to actively manage their wealth and investments, as well as those who want direct ownership of actual securities rather than staying invested in pooled funds.

Investors looking for particular strategies or investment themes (not easily available through regular market investments) may also consider PMS. It is a good fit when you have a large corpus, can allocate 15-20% of your net worth to PMS, and have a long-term horizon and diversification needs. 

What Features To Look For In PMS?

Some of the key features to look for in a PMS include -

• Consistent performance across market cycles

Track record and overall performance in varying market conditions, such as volatile periods, downturns, upturns, etc. Check across timeframes like 1, 3, 5, and 10 years. 

• Clear investment philosophy

The investment approach and strategy, whether sector-, asset-, or company-type-specific, etc. Align it with your own goals and risk appetite. 

• Risk Framework

Risk management strategies, diversification, and capital preservation goals to minimise losses. 

• Transparent reporting and disclosures

Regular and transparent reporting mechanisms with easy managerial access. 

• Reasonable and well-structured fees

Fee structure, inclusive of performance fees, fixed management fees, incentives, etc. 

• Experienced and stable fund management team

The expertise, background, and overall consistency of the fund manager. 

• SEBI registration and compliance

Check for full regulatory compliance and SEBI registration. 

What are the PMS Charges in India?

PMS charges usually include a fixed management fee of 1-2.5% annually on assets under management, along with a performance fee (10-20% of profits above a certain threshold). It may also include transaction/custodian fees, while some providers may charge an entry or exit load (1-3%) for early withdrawals.

Other potential costs include brokerage fees for executing trades, custodian fees for holding securities, audit and regulatory compliance fees, and GST on these costs. 

There are various fee structure models in this space, including fixed-only, where the management fee is paid outright, irrespective of actual performance, and variable or performance-only. In the latter system, there is a significant performance-based fee but no fixed outgo. Hybrid models have lower fixed charges with higher performance fees. 

Conclusion

Portfolio Management Services are designed for discerning investors who value customisation, transparency, and professional management. While PMS involves higher costs and risks, it can play a meaningful role in long-term wealth creation when chosen carefully and aligned with clear financial objectives.

As with any investment, understanding the structure, risks, and suitability is crucial before committing capital.