What is Portfolio Management Scheme?
Portfolio management scheme popularly known as PMS are specialized investment vehicle for lump sum investments. The portfolio manager invests the money in shares and other securities and manages the portfolio on behalf of the client.
One can invest fresh money in Portfolio Management Scheme and the portfolio manager will construct a portfolio by deploying that money. Also one can transfer his existing share portfolio to the Portfolio Management Scheme provider. In that case, the portfolio manager will revamp the portfolio in sync with his investment philosophy and strategy.
Once the Portfolio Management Scheme account is opened, the client will be given with a web access to his portfolio. The client can look at where the portfolio manager is investing client’s money. Also one will be able to generate reports like Investment Summary, Portfolio Transaction List, Performance Analysis, Portfolio Statement and Quarterly capital gain report.
As a result, Portfolio Management Scheme relieves investors from all the administrative hassles of investments
Portfolio Management Scheme Vs Direct Stock Market investment:
One can directly invest in stock market. Then what is the advantage of investing in the stock market through a Portfolio Management Scheme. Investing in share market demands knowledge, right mindset, time, and continuous monitoring. It is difficult for an individual investor to meet all these demands. But a Portfolio Management Scheme meets these demands easily. The Portfolio Management Scheme will be managed by an experienced professional. It saves the time and effort of the individual investors. Hence it is advisable to outsource the stock market investment to a sound Portfolio Management Scheme operator instead of managing it on our own.
Portfolio Management Scheme VS Mutual Funds
Mutual fund is also a good investment vehicle. It should also form part of your total equity investment. But mutual funds are mass products. So they will be conservative by nature. As per SEBI regulation, mutual funds have some investment restrictions. There is a maximum limit on the percentage of amount invested in an individual stock. Also there is some maximum cap on the exposure in a particular sector.
Once the fund manager reaches the maximum limit prescribed by SEBI, he is forced to invest in some other stock or some other sector. That is why we see a large number of stocks in a mutual fund portfolio. Where as a Portfolio Management Scheme will invest in 15 to 20 stocks. This concentration makes it more attractive and aggressive. Managing a 25 lakhs Portfolio Management Scheme portfolio will be more flexible when compared to managing a 2000 crores mutual fund portfolio.
Portfolio Management Schemes relatively have more flexibility to move in and out of cash as and when required depending on the stock market outlook.
Basically the conservative portion of your equity investment can go into mutual funds. The aggressive portion can go into Portfolio Management Scheme.
In the next post, we shall discuss “How To Choose The Best Portfolio Management Scheme”. Do subscribe to the posts
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 firstname.lastname@example.org.