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Portfolio Management Services

Portfolio Management Services account is an investment portfolio in Stocks, Debt, and fixed income products managed by a professional money manager, which can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the entire fund. With PMS, you have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. As per SEBI guidelines, only those entities which are registered with SEBI for providing PMS services can offer PMS to clients.

Types of Portfolio Management Services

  • Discretionary PMS: Where the investment is at the discretion of the fund manager & the client has no intervention in the investment process.
  • Non-Discretionary PMS: Under this service, the portfolio manager only suggests investment ideas. The choice, as well as the timings of the investment decisions, rests solely with the investor. However, the execution of the trade is done by the portfolio manager.
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The client may give a negative list of stocks in a discretionary PMS at the time of opening his account and the Fund Manager would ensure that those stocks are not bought in his portfolio.

Working of a Portfolio Management Services (PMS)

Each PMS account is unique and the valuation and portfolio of each account may differ from one another. There is no NAV for a PMS scheme; however, the customer will get the valuation of his portfolio on a daily basis from the PMS provider. Every PMS scheme has a model portfolio and all the investments for a particular investor are done in the Portfolio Management Services on the basis of the model portfolio of the scheme. However, the portfolio may differ from investor to investor.

Portfolio Management Services Charges:

A PMS charges the following fees. The charges are decided at the time of investment and are vetted by the investor.

  • Entry Load – PMS schemes may have an entry load associated with it. It is charged at the time of buying the PMS only.
  • Management Charges – The portfolio manager shall charge a fee as per the agreement with the client for rendering portfolio management services. The fee so charged may be a fixed amount or a performance-based fee or a combination of both. However, no upfront fees shall be charged by the portfolio manager directly or indirectly to the clients. The agreement between the portfolio manager and the client shall, include the quantum and the manner of fees payable by the client for each activity for which service is rendered by the portfolio manager directly or indirectly.

The Fees charged are different for every Portfolio Management Services provider and for every scheme. It is advisable for the investor to check the charges of the scheme. Apart from the charges mentioned above, the PMS also charges the investors like Custodian Fees, Audit charges & Transaction brokerages.

Taxation for Portfolio Management Services (PMS)

Any income from the Portfolio Management Services account is a business income. Each Portfolio Management Services account is in the name of an additional investor and so the tax treatment is done on an individual investor level.

Profit on the same can be considered as business income. (i.e slabs). Profit can be considered as Capital gain. [STCG(15%) or LTCG(10%)]. It depends on the client’s Chartered Accountant or the assessing officer how he treats this Income. The PMS provider sends an audited statement at the end of the FY giving details of STCG and LTCG, it is on the client and his CA to decide to treat it as capital gain or business income.