IF people think you have some connection to the stock markets, they turn to you with queries. So, often, I am asked, “Do I need to hand over my money to a Portfolio Manager?”
Whether an investor would benefit from having a portfolio management services (PMS) or not is a personal question. I’m no money manager; I am only a financial domain trainer who dabbles in writing. And, in any capacity, I don’t give personal investment advice. This is not just a disclaimer, but a matter of fact. Yet, I'll tell you the advantages and drawbacks of PMS.
Portfolio Managers
Usually, big and large investors use a money manager to run a portion of the institution’s money and make all the investment decisions. Until recently, individual investors could only get access to these managers if they had millions of rupees to invest. But in recent years, the minimum investment requirements – and, just as importantly costs – have come way down. Or so it seems.
When you open a PMS, it means you have signed a limited power of attorney to let an investment professional run your portfolio or some portion of it. Usually, the manager should (will) begin by determining your investment goals, time horizon and risk tolerance.
So, typically, the portfolio of a 70-year old school teacher without children will look very different from that of a 25-year old son of a millionaire who plays tennis.
Some features and advantages of PMS
Personalised asset allocation
The portfolio should be based on your personal investment goals. It would not be just a general strategy like “growth” or “income.” The money that you need in 6 days would be in a savings bank account, money that you require in 6 months in a floater account, and money that you require in 6 years in an (say) Index fund or allocated to equity as chosen by the portfolio manager. If you did go to a proper portfolio manager he would do two things for you create a portfolio that suits your personality. For a senior government servant with an indexed pension he could take more risk in the portfolio, and for a financial product sales man he would take less risk.
Transparency
You should be able to see your portfolio on a 24/7 basis – all your investments should be posted on a website where you can do an analysis as you wish. The website should give your capital gains – booked and un-booked profits, current value of your investments, etc. Obviously you will have the whole thing password protected and therefore secure.
Tax efficient
Your portfolio can be run so that taxes are optimised. If you went to the manager when you were 55, he might decide to book profits once you have retired or after you start getting the senior citizen benefits.
Costs
PMS managers charge a flat annual fee plus profits. Most of their money is made on the profits unlike a flat fee like a mutual fund. However you will still incur costs like custodian charges, administration fee, brokerage, etc.
Performance
PMS accounts often offer the services of decent money managers with good investment systems and favorable track records. However, unless you have put your own money in various schemes you cannot compare the various managers. There is no public data of all the portfolio managers unlike in the case of mutual fund managers.
Convenience
If you are too busy to give your investments the attention they deserve – or if you are an inexperienced or emotional investor – having a professional run your portfolio may be a good solution.
Illustration: Vaibhav Shirke
Next page: Read the drawbacks
Also read: PV SUbramanayam's blog
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