What is Portfolio Management Services? PMS Meaning, Types & Benefits

According to a study conducted by the Global Financial Literacy Excellence Centre, only around 24% of India's adult population is financially literate. As compared to other emerging economies, the country has the lowest financial literacy rate.But on the other hand, the number of high-salaried corporate professionals and business people are consistently rising. This gap between financial literacy and increasing income levels can be effectively filled with the Portfolio Management Service (PMS). Take a look at what PMS is, how it works, and top benefits-

Portfolio Management Service or PMS caters to the investment needs of investors, generally high net-worth individuals (HNIs) and institutions. Investors can rely on this tailor-made service to invest and earn competitive returns from different asset classes.As professionals manage the investment portfolio, PMS enables investors with limited financial knowledge to take advantage of all the different types of investment options. The investment portfolio is customized as per the needs of the investor to ensure that it meets all the expectations and needs of different investors.

PMS can be divided into three categories- Discretionary, non-discretionary, and advisory.

• Discretionary PMS With discretionary PMS, the portfolio or fund manager has complete authority to make investment decisions on behalf of the clients. The portfolio manager handles even tasks like documentation.
• Non-Discretionary PMS A non-discretionary PMS does not provide this authority to the fund managers. With this type of PMS, the portfolio manager functions as an advisor to the clients.
  While the portfolio manager can provide advice and suggestions, the decisions are ultimately taken by the clients. However, it will be the responsibility of the portfolio manager to execute the transaction eventually.
• Advisory PMS As the name suggests, advisory PMS are portfolio management services where the portfolio managers only provide investment suggestions.
  Whether or not to consider the suggestion of the portfolio manager depends on the client. Even the execution of the transaction is done by the client.

The primary goal of any reputed PMS is to provide their customers with higher returns while still keeping risks to a minimum. Here is a brief overview of how these services work-

• Security Analysis and Portfolio Creation The first step in creating portfolios for clients is security analysis. Portfolio managers closely analyze all the different investment options available to identify the risk factors and returns potential. The securities are then selected as per the service or fund objectives.Most PMS providers have multiple such funds created to provide their clients with many different options to choose from. Eventually, the fund that best meets the client's expectations, risk profile, and investment objective is selected.
• Portfolio Revision PMS is not a one-time process. Fund managers continuously monitor your portfolio and make appropriate changes when required. For instance, if a particular security is proving riskier than expected, but the client is not comfortable with the high level of risk, funds can be moved to safer securities.Such adjustments or revisions are made regularly to earn maximum returns while still keeping the risk level in line with the investor's risk appetite.
• Portfolio Evaluation Another vital aspect of PMS is portfolio evaluation. At regular intervals, the fund managers evaluate all the different funds they offer. The risks and returns are assessed to identify opportunities for revision.
  If there are other securities that the fund managers believe could offer higher returns and meet the fund/investor objectives, they will try to capitalize on them.

Now that you know what is portfolio management , types and how it works, take a look at some of the top benefits of PMS-

• Professional Investment Management The most significant advantage of PMS is professional investment management. With PMS, you get access to investment professionals who are well-versed in the world of finance. They have the knowledge and expertise to make highly rewarding investment decisions on your behalf. In return, you are generally required to pay some part of the returns to the PMS provider.
• Portfolio Customization No two investors are the same. From investment objective, risk profile to the investment amount, there can be several major differences between investors. As an investor, what you need is a strategy or portfolio created, keeping your needs and objectives in mind. PMS provides you with this customized investment opportunity.
• Regular Revisions for Maximum Earning Potential The world of investments is very dynamic. There are several rewarding investment opportunities available at regular intervals. Professional fund managers track such opportunities to try and maximize the returns for their clients. Periodic revisions are made to the portfolio so that you are better able to reach your investment objectives.

The world of finance is not the easiest to understand. Most investors generally do not have the time to learn and master all the different securities. The expertise of professional portfolio managers could prove highly beneficial in such cases.As a professional handles the investments and portfolios are adjusted as per the clients' needs, PMS offers an excellent combination of higher returns potential with nominal risk. But ensure that you consider only registered and reputed PMS providers so that you can achieve your financial objectives in a transparent, timely, and efficient manner.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.