I want to invest Rs10 lakh in portfolio management services (PMS). What returns will I get in comparison with other funds offered by different companies. Kindly advice.
-Vikram Khilare
There is a world of a difference between PMS offered by banks and other investment advisors. This service also varies from pure mutual fund portfolios, to direct stock holdings to a combination of both. The only similarity between PMS and mutual funds is that the actual investment decisions and stock selection is made by a fund manager. As far as returns are concerned it is not necessary that PMS will offer better returns than mutual funds or vice versa.
The main benefit of PMS is the personalised service and customised portfolio solutions on offer. However at Rs 10 lakh, the level of personalisation offered will not be significant. Further your money will be invested in a pool with that of many other investors. This in turn doesn't make the fund very different from a mutual fund. However if you are the kind of investor who would like to track the daily developments of your portfolio then PMS would do that for you. However this is not a good enough reason to pick PMS over mutual funds.
One of the features that go against PMS is that unlike mutual funds they do not come under the purview of the Securities and Exchange Board of India (SEBI). Hence the restrictions placed by SEBI on the structure of the fund's portfolio do not apply here. Another aspect that you need to be wary of in case of PMS is the cost structure. Often times the cost structure is ambiguous; moreover there is no regulatory authority to monitor these charges. Further, trading costs can be significant here because you end up incurring a short-term capital gains tax on market transactions, taking up the total cost of fund management.
You also need to be cautious of the past performance indicators quoted by the financial advisors, these are often quoted over convenient periods. However, in case of mutual funds the performance indicators are available in the public domain.
The fact remains that PMS in its true sense is available to high net worth individuals. For smaller sums such as Rs 10 - 25 lakh or so, there is not much in terms of customisation available to the investor. At best, your financial advisor will offer you two to three different types of funds with varying asset allocation. Mutual funds on the other hand offer a wider choice. PMS in India is still in its nascent stages and has a long way to go; in the meantime we would recommend that you stick to mutual funds.
This article was originally published on January 22, 2008.
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