Portfolio Management Services

in India

By Dr. B. Krishna
Reddy
Professor-SKIM

Meaning

Portfolio Management Services account is an

investment portfolio in Stocks, Debt and fixed
income products managed by a professional
money manager, that can potentially be
tailored to meet specific investment
objectives.

Types of PMS
Discretionary PMS Where the investment is at
discretion of the fund manager & client has no
intervention in the investment process.
Non-Discretionary PMS Under this service, the
portfolio manager only suggests the investment
ideas. The choice as well as the timings of the
investment decisions rest solely with the investor.
However the execution of the trade is done by the
portfolio manager.

Fees in a PMS

Portfolio management services either have a

Fixed
Profit-sharing
Hybrid fee structure

Advantages of PMS

PMS trade in a wide range of

securities, which are not available to
a mutual fund.
PMS regulations are less strict than
MF regulations.
A PMS is a more personalised
investment solution.

Disadvantages of PMS

It do not disclose the portfolio as

much as MFs.

Example of Portfolio
management Service Providers

Prudential ICICI
Prudential ICICI Asset Management
Company is a joint venture between
Prudential Plc. - UKs leading insurance
company and ICICI Ltd. - Indias premier
financial institution. The Company serves as
the investment manager for Prudential ICICI
Mutual Fund, one of Indias largest private
sector mutual fund.

Example of Portfolio
management Service Providers

Reliance Portfolio Management Services

Reliance Portfolio Management Services is an
exclusive offering from the portfolio management
division of Reliance Capital Asset Management
Ltd., a wholly owned subsidiary of Reliance
Capital Ltd., Reliance Capital Asset Management
Ltd. is also the investment manager for Reliance
Mutual Fund schemes wherein it manages assets
worth over Rs. 42,200 crores (as on Feb 28,
2007).

How can investor invest in

PMS
There are two ways in which an investor can
invest in a Portfolio Management Services:
Through Cheque payment
Through transferring existing shares
held by the customer to the PMS
account. The Value of the portfolio
transferred should be above the minimum
investment criteria.

How can investor invest in

PMS
Beside this customer will need sign a
few documents like:
PMS agreement with the provider
Power of Attorney agreement
New demat account
Documents like PAN, address proof and
Identity proofs are mandatory.

:
PROCEDURE FOR SETTING UP PORTFOLIO MANAGEMENT
SERVICES

(1) Necessary infrastructure like adequate office

staff, equipment and manpower to discharge the day
to day activities.
(2) To employ minimum two persons with experience
to conduct portfolio management business.
(3) Any person who is directly or indirectly connected
with the applicant has not been granted registration.
(4) The capital adequacy is not less than a net worth
of Rs. 2 Crores in terms of capital plus free reserves.

:
PROCEDURE FOR SETTING UP PORTFOLIO MANAGEMENT
SERVICES

(5) The applicant or his partner or director or

principal officer is not involved in any
litigation connected with the securities
market.
(6) The applicant has professional
qualification in finance or law or accounting
and business management.
(7) The grant of certificate is in the interest of
the investors

Roles and Responsibilities of

Portfolio Manager
A portfolio manager plays a pivotal role in deciding
the best investment plan for an individual as per
his income, age as well as ability to undertake
risks.
A portfolio manager is responsible for making an
individual aware of the various investment tools.
A portfolio manager is responsible for designing
customized investment solutions for the clients.
A portfolio manager must keep himself updated
with the latest changes in the financial market.

Roles and Responsibilities of

Portfolio Manager
A portfolio manager ought to be unbiased and a
thorough professional.
A portfolio manager needs to be a good
decision maker.
He should communicate with his client on a
regular basis.
He should be patient with his clients.
He should never sign any important document
on his clients behalf

Roles and Responsibilities of

Portfolio Manager
He should never pressurize his client for any
plan.
He should keep client money in separate
account with the public sector bank.
He should maintain the separate ledger
account for all purchases and sales taken at
market price.
Final settlement and termination of contract
should be done as per contract.

Reports expected from Portfolio

Manager
The portfolio manager shall furnish periodically a report to the
client, as agreed in the contract, but not exceeding a period of
six months and as and when required by the client and such
report shall contain the following details, namely:
(a) the composition and the value of the portfolio, description of
security, number of securities, value of each security held in the
portfolio, cash balance and aggregate value of the portfolio as on
the date of report;

(b) transactions undertaken during the period of report including

date of transaction and details of purchases and sales;

Reports expected from Portfolio

Manager
(c) beneficial interest received during that
period in respect of interest, dividend, bonus
shares, rights shares and debentures;
(d) expenses incurred in managing the portfolio
of the client;
(e) details of risk foreseen by the portfolio
manager and the risk relating to the securities
recommended by the portfolio manager for
investment or disinvestment.

PMS Product

There is a wide range of PMS product options in the market.

Portfolio Management Services help you to take an optimum
decision in choosing the ideal option. It gives you access to a wide
choice of the best fund managers of AMCs offering customised
Portfolio Management Services (PMS).
Equity Advisory Products
Equity investment has become a more involved activity. It calls for
awareness and understanding of the business and economic
variables that affect equity valuations. There are several products
that will help you make the appropriate equity investments. You
can opt for dividend yield portfolios, equity portfolios investing in
stocks across market capitalisations or products investing in large
or mid-cap stocks.

PMS Product

Capital Protected Products

Equity and derivative-linked capital protection products offer
you a flavour of the equity markets with capital preservation.
Prudential ICICI and Benchmark offer you options in this
category of PMS products.
Derivative Arbitrage Products
These are a range of products that enable you to take
advantage of arbitrage opportunities in the derivative markets.
They also take advantage of spreads between the price of a
stock future and the underlying stock. Such products are
suitable for people with investments in relatively low-risk assets
who are looking for potentially higher risk-adjusted returns.

PMS Product

Pure Derivative Products

These products endeavour to achieve significant
appreciation in capital, by investing in a mix of
stock and index options. The portfolio may be
considered suitable:
For investors with a high-risk appetite who desire
significant appreciation in their capital and are
willing to take on risk for the same
As a portfolio return enhancer for clients with large
investments in low-risk fixed income assets

PMS Product

Alpha Products
The Alpha Portfolio seeks to capture Alpha - which
is out performance to the index on the clients
portfolio. Thus, the entire portfolio will be hedged
against overall market movements by using
derivatives. It seeks only to gain from out
performance vis--vis market while eliminating
beta. The Alpha Portfolio is suitable for investors
with a low to medium risk profile and an
investment horizon of more than 12 months.