Portfolio Management Services (PMS) is a tailor-made investment service offered to cater the investments objective of niche segment of investors with minimum ticket size of Rs. 50 lacs. The clients can be Individuals or Institutions with high net worth. In simple words, a portfolio management service provides professional management of your investments to create long term wealth. The primary aim of PMS is to provide over and above the average returns to the investors.
PMS Investors gets ownership in the individual shares as the stocks lies in the clients demat unlike mutual funds. Investors have a demat and a bank account in their name with the power of attorney (POA) in favor of PMS manager. In a discretionary portfolio, the manager independently manages the funds of each client in accordance with the needs of the client while a non-discretionary portfolio is managed as per client’s direction.
Flexibility: Unlike mutual funds, the PMS manager has a fair amount of flexibility in terms of sectoral allocation, stock selection and maintaining cash position.
Transparency: There is far more comprehensive communication, performance updates, fund manager access, reporting etc.
Focused & Concentrated Portfolio: Generally, the PMS portfolios are far more concentrated comprising of 10 – 25 stocks unlike MFs where in the portfolios are quite diversified. Concentrated and focused portfolios in case of PMS help in significant outperformance and alpha generation in the longer run.
Gain in the PMS is taxed as capital gains. If the holding of the stock is less than 12 months, it is considered as STCG (Short Term Capital Gain) and taxed at 15% + surcharge. In case of 12 months and above holding it is LTCG (long term capital gain) and taxed at 10% + surcharge. Dividend income is free of tax as the dividend distribution tax is already deducted at the source. However, if the dividend income in a financial year is above 10 lacs, additional dividend income tax is applicable.