At a time when retail investors are circumspect in the face of high volatility and uncertainty inflicted by the second wave of covid-19 in India, investment advisers are targeting prudent and better off investors by offering portfolio management schemes.
“Portfolio management schemes (PMS) are ideal for investors seeking long term wealth creation through investment in high growth potential companies as the schemes offer opportunity to outperform the index and mutual funds,” said Satish Menon, executive director, Barjeel Geojit Financial Services.
Advisers are attracting investors by saying a PMS strategy involves investing in prospective businesses with visionary management, which have the potential to scale up and grow exponentially over a five to six year period and to generate risk-adjusted returns to the tune of at least 20% on INR basis.
More for PMS
Though a large number of retail investors prefer mutual funds as a means of investing in stocks, there is a growing number of investors with sizeable allocable surplus going for PMS.
The schemes are positioned to invest predominantly in equities of mid cap and small cap companies that have a sound track record, quality management, earnings and growth potential and strong fundamentals.
The strategy is to invest across a wide gamut of fundamentally strong businesses in the large cap, mid cap and small cap stocks by identifying mispriced stocks with high growth potential and available at reasonable valuations.
Short-term strategy
Barjeel Geojit research analyst Balaji Vaidyanathan said the short-term strategy for an investor is that they should be ready with the shopping basket at this point in time and be prepared to buy some of the stocks that may experience a sharp correctection because of covid.
“These issues are transient and not permanent in nature. So whether there is covid or no covid there are always opportunities in the market. There are some sectors which will do extremely well during covid. Any strategy that is over weight on IT, pharma, specialty chemicals, real estate, manufacturing, commodities, new age businesses and home improvement sectors will do extremely well over the next two to three years,” he said.
As per the guideline of the market regulator Securities and Exchange Board of India (Sebi), any investor who needs to invest in PMS, the minimum ticket size is INR 5m ($67,223, £48,405, €55,677).
It is a single investment of INR 5m. There is no entry load, but the exit load is 1% on redemption before one year, applicable for full as well as all partial redemptions.
PMS vs mutuals
PMS are specialised investment vehicle for lump sum investments. The portfolio manager invests the money in shares and other securities and manages the portfolio on behalf of the client. The client can look at where the portfolio manager is investing client’s money.
Mutual funds use the pooled accounts for the funds and securities whereas PMS use a separate bank account and demat account for each client. Minimum investment amount for a mutual fund is INR 5,000. In PMS, investors can take positions in even slightly illiquid name.
PMS is concentrated in nature by design, so there is a concentrated set of stocks, the number of stocks is around 30 to 35, whereas in mutual funds the number of stocks is in excess of 70.
The market value of mutual fund holding is calculated on the basis of Net Asset Value (NAV) of the units held; whereas in PMS it is the total of the market value of the securities in demat account and cash in bank account of the client.
Mutual funds revise their portfolio on a monthly basis through their factsheet, whereas in PMS the investor can see the portfolio daily through their individual demat account.
Mutual fund charges are capped by the market regulator Sebi whereas PMS fees are not based on any guidance by the regulator, except for the minimum investment stipulation of INR 5m.
Financial planners are of the view that PMS are ideal for large investments and also carry a higher degree of risk, whereas mutual funds are simpler investment tools, but the returns are relatively lower.
In terms of transparency of the portfolio, in PMS an investor can see their portfolio every day, whereas in a mutual fund the investor will be able to see it at the end of a quarter or six months.
“With the flexibility that PMS mandates provides, they have potential to do better than mutual funds but it needs more maturity and risk tolerance from investors,” Vaidyanathan said.
