Portfolio management scheme popularly known as PMS are specialized investment vehicle for lump sum investments. The portfolio manager manages the portfolio on behalf of the client by investing the money in shares and other securities.

You can invest fresh money in Portfolio Management Scheme and the portfolio manager will build a portfolio by deploying that money. Also you can transfer your existing share portfolio to the Portfolio Management Scheme provider. In that case, the portfolio manager will revamp your share portfolio in sync with his investment philosophy and strategy.

Once the Portfolio Management Scheme account is opened, you will be provided with an online access to your portfolio. You can look at where the portfolio manager is investing your money. Also you will be able to generate reports like Portfolio Transaction List, Investment Summary, Performance Analysis, Portfolio Statement and Quarterly capital gain report. As a result, Portfolio Management Scheme relieves you as an investor from all the administrative hassles of investments.

Portfolio Management Scheme Vs Direct Stock Market investment:

You can directly invest in stock market. Then what is the benefit of investing in the stock market through a Portfolio Management Scheme. Investing in share market demands time, knowledge, right mindset, and continuous periodical monitoring. It is really difficult for an individual investor to meet all these demands. But a Portfolio Management Scheme meets these demands at ease. The Portfolio Management Scheme will be managed by a professional expert. It saves a lot of time and effort of the individual investors like you. Hence it is advisable to outsource the stock market investment to a sound Portfolio Management Scheme operator instead of managing it on your own.

Portfolio Management Scheme VS Mutual Funds:

Mutual fund is also really a good investment vehicle. It should also form part of your total equity investments. But mutual funds are made for the mass. So they need to be conservative by nature. As per SEBI regulation, mutual funds have some investment restrictions. There is a maximum limit on the percentage of amount invested in an individual stock. Also there is some maximum cap on the exposure in a particular sector.

Once the fund manager reaches the maximum limit prescribed by SEBI, he is forced to invest in some other stock or some other sector. That is why we see a large number of stocks in a mutual fund portfolio. Where as a Portfolio Management Scheme will invest in 15 to 20 stocks. This concentration makes Portfolio Management Scheme more attractive and aggressive investment. Managing a 25 lakhs Portfolio Management Scheme will be more flexible when compared to managing a 2000 crores mutual fund portfolio.

Portfolio Management Schemes relatively have more flexibility to move in and out of cash as and when required depending on the share market outlook.

Basically the conservative portion of your equity investment can be invested in mutual funds. The aggressive portion can be invested in Portfolio Management Scheme.

How to choose a best Portfolio Management Scheme:

There are so many Portfolio Management Schemes in the industry. So it is really very difficult to choose a good Portfolio Management Scheme provider. Here are a few factors to be considered before choosing a Portfolio Management Scheme.

1) Yardstick for Performance:

You should not just go by the past performance alone. Making an analysis on various Portfolio Management Schemes in the industry with their past performance along with the risk adjusted return and the consistency of performance will be really of use in selecting the best Portfolio Management Scheme.

2) Minimum Investment Criteria:

You need to avoid Portfolio Management Schemes where the minimum investment is less than Rs.25 lacs. Even there are Portfolio Management Scheme operators who keep minimum investment for their schemes as low as Rs.5 lacs. But these kinds of Portfolio Management Scheme operators will have more number of PMS accounts handled by them. When the quantity (the number of PMS A\cs) goes up the quality (the performance) may relatively come down. Therefore it is better to choose a Portfolio Management Scheme where the minimum investment is Rs.25 lacs or more. So that our PMS A\c will be directly handled and managed by the top level portfolio manager and not managed by the juniors and analysts.

If you are planning to invest less than Rs.25 lacs, then the ideal investment product for you would be mutual funds.

3) Conflict of interest:

Portfolio Management Schemes have been offered by some stock broking companies as well as investment management companies. There is a conflict of interest in Portfolio Management Schemes offered by share broking companies. The main business of a share broking company is to earn commission or brokerage income by facilitating the share market transactions. Portfolio Management Scheme is an additional business for them. It is not part of their core business. Hence there may not be enough focus on the Portfolio Management Scheme business. Also they may indulge in doing undue and unnecessary churning of the clients’ portfolio to earn more commission income. This will cause additional expenses and short term capital gain tax to the client.

The core business of investment management companies is managing the investments of their clients to earn the management fees. So, with the Portfolio Management Schemes offered by investment management companies, there is no conflict of interest or vested interest.

Therefore it is always advisable to go for a Portfolio Management Scheme offered by investment management companies.

4) Role of Professional Financial Planners:

A professional financial advisor or financial planner will study and analyse the Portfolio Management Schemes offered by various stock broking companies as well as investment management companies. If you approach them, they will guide you in choosing the right Portfolio Management Scheme depending upon your requirements and other relevant factors. Also a professional financial advisor will continuously monitor the performance of various Portfolio Management Schemes and advice you on a regular basis on the performance of the Portfolio Management Scheme where the you have invested vis a vis the other PMS schemes in the industry.

After a certain period, if necessary he may advice you to move from one Portfolio Management Scheme operator to the other.

ESOPs and Portfolio Management Scheme:

ESOPs are provided by the companies to its employees based on their merit and service. Most of the employees are of the opinion of keeping the ESOPs as it is forever because it is their company shares. But logically it is more risky to invest in a company to whom you work for. Because, your employment income as well as investment income will depend on the performance of a single company. So it is not advisable to keep your investments in a company where you actually work. So it is always advisable to transfer your ESOPs to a Portfolio Management Scheme. They will revamp it to construct a well diversified portfolio.

Portfolio Management Scheme is an aggressive investment product and really suitable for those investors

· Who have a share portfolio and find it really difficult to manage.

· Who have enough exposure in Mutual funds and looking for a different and good investment option

· Who have a sizable ESOPs.

The author is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

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