Portfolio Management Blog

What is PMS?




Portfolio Management Services is a kind of financial assistance provided by knowledgeable portfolio managers and stock market experts with the help of a research team. The  former manages your equity portfolio. The goal of the Portfolio Management Service is to provide steady returns on your PMS investments through expert financial portfolio management. High-net-worth investors find Portfolio Management Service to be the best option for PMS investing since it eliminates all monitoring headaches and offers excellent risk management flexibility and regular reviews.

A lot of stock brokers, like Smifs Limited, provide their customers with Portfolio Management Services (PMS). They must receive a PMS licence in order to do this. Usually, only high-net-worth people (HNIs) are eligible for this. In this type of service, the client’s portfolio is managed and investment decisions are made on their behalf by the stockbroker. The investor’s chosen securities mix is determined by the portfolio manager. When necessary, new equities are added to the portfolio to replace the old ones in order to maximise performance.

In addition to portfolio management, stock brokers provide guidance on client portfolio management based on the customer’s requirements. The customer can decide which investments to make based on this advice.

According to SEBI, a portfolio manager is any individual who, in accordance with a contract or arrangement with a client, advises, directs, or undertakes on behalf of the client (whether in the capacity of a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the client’s funds, as applicable.

 A manager of a portfolio may be non-discretionary or discretionary. In contrast to the non-discretionary portfolio manager, who manages the funds in accordance with the client’s instructions, the discretionary portfolio manager handles each client’s funds separately and independently, according to their needs.

An applicant must pay SEBI a non-refundable application fee of Rs. 1,00,000 (one lakh only) in order to register as a portfolio manager or renew their registration. When SEBI grants a certificate of registration, each portfolio manager must pay registration fees of Rs. 10 lakh.

All information that SEBI determines to be pertinent to the activities involved in portfolio management is taken into consideration. The applicant must be a body corporate and possess the tools, resources, and staff required to carry out the duties of a portfolio manager, including enough office space and personnel.

At least two employees with a minimum of five years combined experience as investment managers, stock brokers, portfolio managers, or in other fund management-related roles should work for the applicant.

In addition, the applicant must meet all capital adequacy criteria, etc. The portfolio manager’s principal officer must possess the following qualifications:

  • a professional degree in finance, law, accounting, or business management from a university, an institution recognised by the federal government, any state government, or a foreign university; OR
  • a minimum of ten years of experience in related securities market activities, such as stockbroking, fund management, or portfolio management.

A minimum net worth of Rs. 2 crores are required for the portfolio manager. Each portfolio manager who oversees assets valued at more than Rs. 500 crores must designate a custodian. Portfolio managers that provide only advisory services will not be subject to this requirement.

Prior to accepting an assignment for the management of funds or a portfolio of securities on behalf of the client, the portfolio manager and the client execute a written agreement that outlines the client’s and the portfolio manager’s respective rights, obligations, and liabilities with regard to the management of funds or securities. The agreement includes all the information listed in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.

There is no set fee schedule that portfolio managers must charge their clients according to the SEBI (Portfolio Managers) Regulations, 1993.  Nonetheless, the rules stipulate that in order to perform portfolio management services, the portfolio manager must bill a fee in accordance with the terms of their contract with the customer. This cost could be a one-time payment, a fee dependent on returns, or a mix of the two. For any activity for which the portfolio manager provides services, whether directly or indirectly (in the event that such services are outsourced), the portfolio manager must get express prior authorization from the client before charging such fees.

The portfolio manager is not allowed to accept stocks or funds from clients that are worth less than Rs. 25 lakhs. Through an accredited stock exchange, a portfolio manager is allowed to engage in derivatives, including trades for hedging and portfolio rebalancing purposes. Nevertheless, when it comes to investing in derivatives, portfolio leverage is prohibited. The portfolio manager should essentially invest rather than borrow on behalf of his clients, and the portfolio client’s overall exposure to derivatives should not exceed the funds allocated to the portfolio.

  • the amount and mode of payment of fees that the client must pay for each activity for which the portfolio manager provides services, whether directly or indirectly (in the event that such services are outsourced).
  • The portfolio risks.
  • full disclosures on transactions with linked parties in accordance with the accounting standards that the Institute of Chartered Accountants of India has established in this respect.
  • The performance of the portfolio manager and
  • the portfolio manager’s verified financial records for the three years prior to the audit

Clear agreements between the back office and the clients to whom PMS is being provided are required. Such clients’ accounts must be distinguished in the back office system, and any transactions carried out on their behalf must be prominently identified as such. The costs associated with these accounts need to be identified and paid for individually.

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