• Home
  • About Getting Money Wise
  • Contact Us

Getting Money Wise

Actionable Personal Finance Advice For Everyone

  • Save money
  • Credit Cards
  • Personal Finance Tools
  • Small business
  • Investing
  • Stock Markets
Home » How To Choose The Best Portfolio Management Scheme

How To Choose The Best Portfolio Management Scheme

March 22, 2011 by Ankit Agarwal

In the last post, we discussed at length about the investment opportunity in the form of a Portfolio Management Scheme which helps you generate healthy returns without spending much time tracking your investments. However, like all other investment products there are tons of Portfolio Management Schemes (PMS) available in the market.
best-portfolio-management-scheme
 
With multiple choices available in the market, it is useful to understand certain benchmarks that you should rate a particular Portfolio Management Scheme before deciding to invest. Here are some factors to be considered before choosing a Portfolio Management Scheme.
 

1) Yardstick for Performance:

One should not just go by the past performance alone. Making an analysis on various Portfolio Management Schemes in the industry with their past performance along with the risk adjusted return and the consistency of performance will be useful in selecting the best Portfolio Management Scheme.

2) Minimum Investment Criteria:

Investors need to avoid Portfolio Management Schemes where the minimum investment is less than 25 lacs. Even there are Portfolio Management Scheme operators who keep minimum investment for their schemes as low as 5 lacs. But these kinds of Portfolio Management Scheme operators will have more number of PMS accounts. When the quantity (the number of PMS A\cs) goes up the quality (the performance) may relatively come down.
Therefore it is better to choose a Portfolio Management Scheme where the minimum investment is 25 lacs or more. So that our PMS A\c will be directly handled and managed by the top level portfolio manager and not managed by the juniors and analysts. If you are planning to invest less than 25 lacs, then the ideal investment product for you would be mutual funds.

3) Conflict of interest:

Portfolio Management Schemes have been run by some stock broking companies as well as investment management companies. There is a conflict of interest in Portfolio Management Schemes run by share broking companies. The main business of a share broking company is to earn commission income by facilitating the share market transactions.
Portfolio Management Scheme is an additional business for them. It is not their core business. Hence there may not be enough focus on the Portfolio Management Scheme business. Also they may indulge in doing undue and unnecessary churning of the clients’ portfolio to earn more commission income. This will cause additional expenses and short term capital gain tax to the client.
The core business of investment management companies is managing the investments of their clients to earn management fees. So, with the Portfolio Management Schemes run by investment management companies, there is no conflict of interest or vested interest. Therefore it is always advisable to choose a Portfolio Management Scheme offered by investment management companies.

4) Role of Professional Financial Planners:

A professional financial advisor or financial planner will study and analyse the Portfolio Management Schemes run by various stock broking companies as well as investment management companies. If we approach them, they will guide us in choosing the right Portfolio Management Scheme depending upon our requirements and other factors.
Also a professional financial advisor will continuously monitor the performance of various Portfolio Management Schemes and advice the client on a regular basis on the performance of the Portfolio Management Scheme where the client has invested vis a vis the other PMS schemes in the industry. After a certain period, if necessary he may advice you to move from one Portfolio Management Scheme operator to the other.

ESOPs and Portfolio Management Scheme:

ESOPs are provided by the companies to its employees based on their service. Most of the employees are of the opinion of keeping the ESOPs as it is forever because it is their company shares. But logically it is too riskier to invest in a company to whom you work for. Because, your employment income as well as investment income will depend on the performance of a single company.
So it is not advisable to keep your investments in a company where you actually work. So it is at all times advisable to transfer your ESOPs to a Portfolio Management Scheme. They will revamp it to construct a well diversified portfolio.

Portfolio Management Scheme is an aggressive investment product and really suitable for those investors
• Who have a share portfolio and find it difficult to manage.
• Who have enough exposure in Mutual funds and looking for a different and good investment option
• Who have sizable ESOPs.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Contents

  • 1 1) Yardstick for Performance:
  • 2 2) Minimum Investment Criteria:
  • 3 3) Conflict of interest:
  • 4 4) Role of Professional Financial Planners:
  • 5 ESOPs and Portfolio Management Scheme:

Filed Under: Guest Post, Investing

Video Tutorials

Easiest Way to Understand What Mutual Funds Are and How They Work

Easiest Way To Understand The Financial & Sub-Prime Crisis

How To Trade On The Wall Street?

How To Invest

Best Tips To Invest Money In The Share Market In 2021 By Experts

Why The Newly Announced TCS Shouldn’t Stop You From Investing In Foreign Equities

Ever Wanted to Invest In Netflix, Amazon Sitting In India? Well Now You Can

Diversifying your investment portfolio: 5 things you should keep in mind

Are You Ready To Invest?

Latest & Trending

  • India Inc.’s Dealmaking Activity Rises Amid Pandemic, Thanks To Mukesh Ambani
  • Modi Promises ‘Many More' Covid-19 Vaccines From India To Help World Fight Pandemic 
  • Best Tips To Invest Money In The Share Market In 2021 By Experts
  • Indian Domestic Passenger Traffic 49.6% Lower In November, Says IATA
  • Top Careers to Pursue with A Finance Degree