Portfolio Management Services (PMS) is a professional investment service offered by a SEBI-registered Portfolio Manager who manages your portfolio of securities on your behalf. Unlike mutual funds, PMS gives you direct ownership of the securities in your portfolio, and the portfolio is tailored to your investment objectives and risk profile.
The minimum investment amount for PMS is ₹50 lakh.
Types of PMS
Portfolio managers offer three types of services:
- Discretionary PMS: The Portfolio manager makes all investment decisions at their sole discretion, within the investment objectives you agree to at the time of on-boarding. You do not need to approve individual trades.
- Non-discretionary PMS: Investment decisions are made at your discretion. The Portfolio manager executes transactions based on your instructions.
- Advisory PMS: The Portfolio manager advises you on buy and sell decisions within your overall profile. The Portfolio manager does not execute trades, manage custody of securities, or handle accounting functions on your behalf.
Who can use PMS
You can invest in PMS if you are an individual, a Hindu Undivided Family (HUF), a company, a trust, or any other entity. Your first single lump-sum investment must not be less than ₹50 lakh, whether in cash, securities, or a combination of both.
After your initial investment, your Portfolio manager cannot allow your portfolio to fall below the minimum threshold as a result of partial withdrawals.
If you are a Large Value Accredited Investor, your Portfolio manager can offer you customised terms and conditions, including different fee structures and quantum of services.
How to invest in PMS
- Approach a SEBI-registered Portfolio manager directly or through a distributor registered with the Association of Portfolio managers in India (APMI).
- Complete your KYC verification.
- Review the Disclosure Document provided by the Portfolio manager. This document contains details of the investment approach, fees and charges, risk factors, and the past performance of the Portfolio manager.
- Sign the PMS agreement and Power of Attorney.
- Transfer your funds or securities to the Portfolio manager.
You can choose to on-board directly with the Portfolio manager without going through a distributor. No charges other than statutory charges apply for direct on-boarding.
What a Portfolio manager can invest in
Depending on the investment approach you agree to, your Portfolio manager can invest in:
- Listed equity shares and equity-linked instruments
- Debt securities, including corporate bonds and money market instruments
- Derivatives, including futures and options, for the purpose of hedging or portfolio management, subject to the terms in your agreement
- Commodity derivatives (subject to SEBI conditions): Portfolio managers may trade commodity derivatives on behalf of clients, subject to obtaining the client's explicit consent and appointing a SEBI-registered custodian, in compliance with applicable SEBI regulations.
- Units of mutual funds
- Units of REITs and InvITs
Your Portfolio manager cannot invest your funds in unrated debt securities. Any investment in securities of the Portfolio manager's own associates or related parties requires your prior written consent.
Your total exposure in derivatives cannot exceed the value of your portfolio.
Fees and charges
Portfolio managers charge fees in one or more of the following ways:
- Fixed management fee as a percentage of the assets under management
- Profit-sharing or performance-based fee
- A combination of both
Your Portfolio manager must disclose all fees and charges in the Disclosure Document before you sign the agreement. You must review these carefully, as they directly affect your net returns.
Distributors of PMS services receive their commissions from the Portfolio manager on a trail basis only. The Portfolio manager cannot charge you separately for distributor commissions.
What to expect after investing
After you invest:
- Your Portfolio manager will segregate your funds and securities from other clients and from the Portfolio manager's own funds.
- You will receive a monthly account statement showing your portfolio holdings, transactions, and performance.
- Your Portfolio manager must report your portfolio performance against a relevant benchmark.
- You can request a detailed report on the performance of your portfolio at any time.
You retain direct ownership of the securities in your portfolio. Your Portfolio manager holds your securities in a demat account and cannot pool your assets with those of other clients.
Compliance and investor protection
SEBI-registered Portfolio managers must:
- Register with SEBI and maintain a minimum net worth as prescribed under SEBI (Portfolio managers) Regulations, 2020
- Ensure their principal officer and decision-making employees hold a valid NISM-Series-XXI-B: Portfolio managers Certification
- Follow a written investment policy covering order placement, trade allocation, and risk management
- Treat all clients in a fair and equitable manner
- Disclose material changes to their Disclosure Document and inform you within the timelines prescribed by SEBI
As an institutional broker, Zerodha can help you set up a trading account as a PMS.