What Are Portfolio Management Services & How It Works?

Portfolio and wealth management with risk diversification concept : Small paper cartons / boxes of financial instruments i.e ETFs, REITs, stocks, bonds, mutual funds and commodities, on a wood table.
what are portfolio management services

A professional financial service where skilled and polished portfolio managers and stock market professionals manage the investor’s equity portfolio with backing from a dedicated research team. Investors often have equities in their demat account and the major challenge there could be managing them. A systematic process to maximize returns while minimizing the risk factor on your investment is Portfolio Management Services.

What are Portfolio Management Services?

portfolio management services

A service which is offered by the Portfolio Manager is largely known as Portfolio Management System (PMS). This investment portfolio mainly deals with stocks, fixed income, debt, cash, structured products and other securities. The portfolios are largely run and managed by professional money managers that are likely to be customized to meet the investment objectives specifically. PMS investor has the freedom and flexibility to customize their portfolios to meet their personal preferences or financial goals. In PMS an investor may invest in their own individual securities, unlike an investor in a mutual fund.

Classifications of Portfolio Management Services:

In PMS there are 4 major kinds of Portfolio Management Services each of which is explained below:

  • Active Portfolio Management: Maximisation of returns is the primary goal of a portfolio manager. Here, the portfolio manager ventures to reduce the risk of the investment by assorting them across asset classes, industries and businesses. This results in a higher turnover when it is compared to the passive style of portfolio management.
  • Passive Portfolio Management: The profiles here have fixed techniques that are in sync with the current trends of the market. The portfolio managers in passive portfolio management preferably choose to invest in Index funds as they see growth passively over time with negligible interventions. This process has a low turnover ratio but gives away good long-term returns.
  • Discretionary Portfolio Management: In this method, a portfolio manager is endowed with the management of a specific portfolio. The portfolio managers prepare an appropriate strategy that they believe is best suiting the investor which is based upon the investor’s objectives, risk tolerance levels and the duration of their investment. There might be a chance someday that a portfolio manager might recommend an equity to an investor who is a risk taker and on the other hand a fixed income to an investor who does not want to take risks.
  • Non -Discretionary Portfolio Management: The portfolio manager in this method would advise you on investing decisions, leaving the final decision to the investor. Upon receiving a thumbs-up sigh from the investor the managers can take an action on behalf of the investor
  • Advisory Portfolio Management: the portfolio manager under this service only suggest investment ideas. The investment decision, choice and execution rest solely with the investor.

How Portfolio Management Works?

what are portfolio management services and how it works

The primary benefit of PMS is that the investment is under the guidance of the experts as the managers assigned to the investor are experts in their fields and have a good understanding of the market volatility and how to deal with it. The PMS managers are efficient and their only objective is to take your profits to an increased level. Based on your financial even-handedness, the investment strategies are customized by the PMS managers and you are required to open demat account to avail the PMS service. The strategies are then redesigned based on your income, budget, and risk-taking capabilities. It is the primary objective of a PMS manager to reduce the risk of the investment while increasing the returns for the investor. They focus on the risk involved and try to diversify it so that the investor does not suffer losses when the market undergoes changes in the trends. Each and every asset and return generated are closely checked by the PMS manager for the investor on a regular basis. In the analysis done, the investor’s money is altered to meet the financial objectives. If you want to relax and reap good returns from your investment, then PMS is what you need.

Why Should One Pick-out Portfolio Management Services?

An aspiring investor should pick Portfolio Management Services if they have a higher net worth and have little knowledge about investments. One should opt for a PMS in case they do not have plenty of time to manage and rebalance their investment. This service helps you to guard your investment in times of uncertainty in the market and also when you are unaware of market volatility. PMS is the best place to be if an investor wants to reap various benefits across multiple asset classes.

Who Can Invest In PMS And What Are Its Tax Treatment?

A corporate body, a sole proprietorship firm, a partnership firm, individuals and non-individuals like Hindu Undivided Family (HUFs) can invest via Portfolio Management Services.

For a PMS investor, the tax liability will remain the same as if the investor is investing directly into the capital markets. However, it is always suggested that the investor should consult a tax advisor for tax related queries. To aid the investor in accessing their tax liabilities the PMS manager provides an audited statement of accounts at the end of each financial year.

Risk is an inevitable part of investment, so all investments involve a certain amount of risks, which also includes the despoliation of the principal amount invested. It also varies depending on the security selected.

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