What is Portfolio Management and Why is it Important for Investors?

Have you ever wondered why we choose to dine out at restaurants instead of simply preparing our favourite dishes at home? With countless tutorials available on platforms like YouTube, it’s relatively easy to learn how to make restaurant-style noodles, burgers, or paneer butter masala in the comfort of our own kitchens. However, if you’re already pondering an answer, understanding the concept of Portfolio Management will come naturally to you. But fret not if you don’t have an immediate answer; this blog is here to assist you.

By opting to dine out at specialized restaurants, you not only ensure a delightful taste experience but also save the time and energy required to recreate the same dishes at home. This saved energy can be used for other activities that bring you greater satisfaction, such as watching more recipes of YouTube, reading a novel, or spending quality time with friends. Moreover, dining out offers a wide range of options tailored to your specific tastes and dietary requirements, all conveniently available on a single menu. The same holds true for Portfolio Management Services.

Portfolio Management Services (PMS) is basically the concept where you give your money to specialised people for managing it. These specialised people can be from a fund house or brokerage house and are called fund managers. The fund managers or portfolio managers are similar to specialised Dosa maker who have more experience and vast knowledge in their field.

The stock market is filled with individuals who know the price of everything, but the value of nothing.
– Philip Fisher

The fund managed under PMS is called asset under management (AUM) and depending upon Fund Manager and scheme opted, this AUM can be invested in various asset class like Equity, Fixed Income Securities, Mutual Funds etc. Fund Houses charges a small amount of fee for their specialised services in the form of management fee and performance fees.

Few Pointers about PMS:

• PMS in India are regulated by the Securities and Exchange Board of India (SEBI), which safeguards the interests of investors in the securities market.
• The minimum investment amount for PMS is generally around 50 lakhs.
• Currently, there are 331 different Asset Management Companies (AMCs) in India that offer PMS services.
• According to SEBI, the total AUM of the PMS industry has experienced a compound annual growth rate (CAGR) of approximately 38% over the past 10 years, increasing from Rs 1.06 lakh crores (April ’13) to Rs 27.73 lakh crores (April ’23). (Source- SEBI)
• The existence of an exit load, which is a fee charged when withdrawing funds, may vary depending on the Fund Houses involved.

PMS can be categorized into two types based on the level of decision-making authority given to the fund manager:

Discretionary Services: In this type, the fund manager has full authority to make investment decisions on behalf of the client. The fund manager can select securities to buy or sell without requiring consent from the client.

Non-Discretionary Services: In this type, the investor has the option to discuss investment ideas with the fund manager but retains the final decision-making authority. The fund manager advises on securities, but the investor has the choice to proceed with the recommendations or not. The execution of trades requires the explicit consent of the investor.

These categories provide flexibility for investors to choose the level of involvement they prefer in the decision-making process of their portfolio management

Now that you have a good understanding of PMS as a product and its types, let’s delve into the benefits of portfolio management by a fund manager:

• Professional Touch/Expert Advice: A fund manager brings a professional touch to your portfolio management. They possess the expertise and knowledge to create the perfect mix of investments based on your requirements and future goals. They carefully select asset allocations that minimize your risk and limit potential downsides
• Research: Fund managers have the advantage of being supported by industry-specific analysts. These analysts diligently track favourable and unfavourable news that can impact investment decisions. Their research helps fund managers capture the optimal upswing of a business cycle, enhancing the portfolio’s performance.
• Transparency: PMS investors directly own the stocks in their Depository Participant (DP) account, ensuring transparency. In the case of non-discretionary PMS, every transaction is communicated to the investor. Additionally, PMS services provide transparency in terms of expense ratios, and investors have 24/7 online access to monitor their portfolios.
• Superior Returns: PMS has the potential to generate superior returns compared to other investment options. Fund managers can adopt a more aggressive approach, taking meaningful exposures to companies that demonstrate growth potential. They have the flexibility to hold onto these investments as long as they continue to deliver value and superior returns.

As Warren Buffet says “Investing is simple but not easy”,  so let the experts do their work.
Reach out to the Relationship Manager at Globe Capital for further understanding and start investing in well researched securities basket to achieve your financial goals at a faster pace. For more details about our PMS schemes, click here.

Happy investing!