WHAT IS A PORTFOLIO MANAGEMENT SERVICE (PMS) OF MUTUAL FUND SCHEMES?
A mutual fund PMS is a professionally managed investment portfolio that invests primarily in mutual fund schemes, exchange-traded funds (ETFs) and Specialised Investment Funds (SIFs), instead of individual stocks. Unlike an equity PMS, where the portfolio consists of shares selected by the manager, a mutual fund PMS builds a portfolio using schemes from one or more asset management companies. The portfolio manager decides the allocation across different asset classes such as equity, debt, gold, silver and international funds, and continuously monitors and rebalances the portfolio based on market conditions, valuations and the investor’s objectives. For instance, a multi-asset PMS may invest in active equity funds, equity ETFs, debt funds or debt ETFs, gold and silver ETFs, REITs, InvITs and international funds.
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WHAT HAS SEBI PROPOSED FOR THIS SEGMENT?
Sebi has proposed a separate regulatory framework for mutual fund-only PMS providers in a consultation paper released last week. It has proposed reducing the minimum investment amount to Rs 25 lakh from the current Rs 50 lakh. The regulator has also proposed lowering the minimum net-worth requirement for portfolio managers to Rs 2 crore from Rs 5 crore, simplifying certification requirements, making dedicated dealing rooms optional and waiving exit loads while switching between mutual fund schemes within the PMS portfolio
HOW IS A PMS DIFFERENT FROM INVESTING IN MUTUAL FUNDS YOURSELF?
When investors build a mutual fund portfolio on their own, they have to decide their asset allocation, choose schemes, monitor performance and determine when to buy, sell or rebalance their investments. In a mutual fund PMS, these decisions are taken by a professional portfolio manager within the investment mandate agreed with the client. The manager decides the allocation across asset classes, selects schemes, switches between them when required, manages cash levels and periodically rebalances the portfolio. Investors pay a fee for these services. Those investing on their own can either choose direct plans, where no distributor commission is paid, or invest through a distributor or a registered investment adviser, depending on their needs.
WHO SHOULD USE A MUTUAL FUND PMS?
A mutual fund PMS is meant for investors who have at least Rs 25 lakh to invest and prefer to delegate investment decisions to a professional manager. It may appeal to those who want a single manager to oversee their allocation across equity, debt, gold, silver and international funds instead of managing multiple schemes on their own. It may also suit investors who are comfortable with active portfolio management and periodic rebalancing in pursuit of better risk-adjusted returns. Those who are new to investing or have smaller sums to invest may continue to find regular mutual fund schemes more suitable.
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