PMS Returns 2020 – Who is the best PMS in India?

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PMS is slowly evolving among the elite class to experient its wealth creation goal. What is the PMS Returns 2020? Do we believe these returns realistic? Who is the best PMS in India?

Portfolio management refers to managing an INDIVIDUAL’S investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame. Portfolio management refers to managing the money of an individual under the expert guidance of portfolio managers.

The major difference between PMS and Mutual Fund is that in PMS it is YOUR individual money which is invested. However, in the case of Mutual Funds, it is a pool of money that gets invested.

As many of you are aware, the minimum investable amount should be Rs.50 lakhs. Do remember that you are holding the stocks in PMS. Whereas in Mutual Funds, you are not holding the stocks directly as it is a pool of money.

There is no concept of NAV (like Mutual Funds) in PMS as you are holding the stocks. However, you receive a daily portfolio status.

Let us see the other features of PMS.

Types of PMS or Portfolio Management Services

There are basically two types of PMS. They are as below.

1. Discretionary PMS – Where the investment is at the discretion of the fund manager and client has no intervention in the investment process. Hence, you may assume that they have a standard portfolio created for you and they just follow it.

Even though you as an investor have no choice to select the fund or the portfolio, you may give a list of negative stocks in this PMS at the time of opening of an account to the fund manager. By giving this choice, you are avoiding certain stocks in your portfolio.

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2. Non-Discretionary PMS – Under this service, the portfolio manager only suggests 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. It is exactly like you are executing your stock buying and selling orders to your brokers.

Portfolio Management Service or PMS Charges

In PMS, there are mainly three kinds of expenses which you have to bear and they are as below.

Entry Load-PMS usually charge the entry load at the time of investing. It may range anywhere around 2% to 3%.

Fund Management Fees-Every Portfolio Management Services scheme charges Fund Management charges. Fund Management Charges may vary from 1% to 3% depending upon the PMS provider. It is charged on a monthly or quarterly basis to the PMS account. This will be deducted from your portfolio (irrespective of whether you are under profit or loss).

Profit-Sharing – There is an additional yearly fee in the form of profit-sharing above a threshold return. Profit-sharing could be as high as 20% of the gains if returns are over 10% in a year.

Other Charges – Don’t believe these charges alone, there may be certain exit load also. This exit load is bit complex than the Mutual Fund exit load charges. Also, few may charge you the following charges.

  • Custodian Fee
  • Demat Account opening charges
  • Audit charges
  • Transaction brokerage

These are the commonly used charges by PMS. However, the rate may differ from PMS to PMS. Hence, be cautious while choosing the PMS.

Taxation of Portfolio Management Service (PMS)

In case of Mutual Funds, the taxation will come into picture only at the time of redemption (irrespective of how many times a fund manager churn the portfolio). The main reason because of this is that it is a pool of money.

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However, in the case of PMS, you are holding the stocks in your name. Hence, every time a fund manager buy or sell the stocks, you have to bear the heat of tax.

As of now, the taxation on equity is as below.

# If stocks are held for less than a year, then a profit attracts Short Term Capital Gain Tax. Accordingly, you have to pay 15% of the tax.

# If stocks are held for more than a year, then a profit attracts Long Term Capital Gain Tax. Accordingly, you have to pay 10% of the tax.

# The above rule of taxation applies if you consider the profit as a capital gain. However, if your PMS churn the portfolio so often, then you have to rethink to consider the capital gain. Such frequent buy or sell of stocks may be considered as a business activity for taxation purpose and accordingly, it will be taxed.

You noticed one thing that compares to Mutual Funds, PMS are non-tax efficient. The reason is that in the case of Mutual Funds, the taxation will come into picture only at the time of redemption. However, you have to bear the tax each time your fund manager in PMS churns the portfolio.

Because of this, your compounding effect in PMS may get reduced each time you pay the tax.

PMS Returns 2020 – Who is the best PMS in India?

Now let us move on to shortlist the PMS Returns 2020 and understand who is the best PMS in India.

I wish to shortlist the PMS based on their AUM they accumulated and dividing them into Large Cap, Multi Cap and Mid & Small Cap oriented PMS.

PMS Returns 2020 - Who is the best PMS in India

Note:-The data is as per the returns of July 2020. There may be certain discrepancies. Hence, cross-check for the returns with respective PMS before taking any decision.

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Should we go for PMS or Portfolio Management Service?

Considering the absence of strict regulations (like Mutual Funds), I feel it is a grey area of investment. Hence, I skip PMS mainly because of the below reasons.

# Expenses:- When you compare PMS expenses with Mutual Funds, then PMS expenses are really heavy. When Index Funds are available at damn cheap expenses of around 0.1% to 0.4%, why we have to pay hefty charges?

# Ticket Size-The current minimum ticket size is Rs.50 lakh. Hence, it is not a product for individuals whose net worth runs in crores.

# Taxation-This is one more negative point to distance. Even though we are investing in equity, the taxation of Mutual Funds is far simpler than the PMS. Also, due to taxation, it will affect our compounding returns. Hence, a big drawback for PMS.

# Documentation-Since PMS accounts entail the opening of a segregated Demat account and registering a power of attorney in favor of the portfolio manager, the documentation tends to be
onerous as compared to Mutual Funds.

# Regulations-Personally I feel, there need to be stricter regulations and disclosure norms for PMS. This is currently lagging. Hence, I don’t want my money to be BAKRAA.

Conclusion:-The list showed above is not exhaustive. Also, personally I am not a fan of PMS. Don’t consider the above listed PMS as BEST PMS. Do your own research as each PMS have their own style and theme. Finally, it is up to you to decide.

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Basu Nivesh
Basav is a SEBI Registered Investment Adviser (SEBI RIA) practicing the Fee-Only Financial Planning Service. He is a CFP (Certified Financial Planner) and blogger at Basu Nivesh. He services around 300+ satisfied clients.
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