You would have come across a financial product known as Portfolio Management Service (PMS). These financial products have equity, debt, etc. as their underlying and are offered by various financial intermediaries. The minimum investment required in these products is Rs. 50 Lakhs. 

PMS have been sold aggressively in India in the last few years and therefore we have analyzed these PMS products. Our analysis and view are as under:

Landscape of PMS:

There are approximately 145 PMS players in India with about 300 different strategies.

Advantages:

• Professionally managed stock portfolio.
• Concentrated portfolio of 20-30 stocks leading to higher return expectation. 

Disadvantages of PMS: 

• Concentrated bets increase the risk of the portfolio.
• Investors must pay tax on gains at the shares level which leads to relatively higher tax.
• The regulations are less for PMS which increases the macro risk.
• Commission paid to distributors/ advisors are higher.

• Higher Expenses – A look at the expense of these products reveals that they carry higher fees. The entry fees of the PMS may range from 1%-3% and management fees may vary between 1.5% to 3.5% p.a. Some PMS also have profit sharing fee of 10%-20%. Investors also have to pay GST on these fees.

Analysis of PMS Products:

To filter the PMS schemes, we applied two criteria i.e.  1) Track record of at least 3 years and 2) Asset size of at least Rs. 1000 Crores.

Based on the above filter, we came across 23 PMS schemes which got shortlisted. Below is the performance comparison of these 23 schemes with respective benchmarks.

Shortlisted PMS Performance with various Benchmarks:  

*Performance as of 31st Jan,2023

**Source PMS Bazar

***Profit sharing fees has not been adjusted in the PMS performance

Summary of PMS performance:

At an aggregate level, only 17% of the schemes were able to beat the benchmark in 1 year. In 3 years and 5 years’ time frame, the outperformance number was at 39% and 53% respectively.

Due to the underperformance, higher risk, less regulations and higher expense, we believe that PMS are not great product for investment. We feel that Equity Mutual Funds are good alternatives as they relatively perform better, have lower cost, and are tightly regulated.   

However, if an investor is interested to add PMS in his/her portfolio for diversification then we can help with the same. We can suggest you PMS suitable to your portfolio. For Alpha Capital, we are neutral to both PMS and Mutual Funds from advising or execution purpose as we distribute both PMS and Mutual Funds.

Happy Investing!!

Best Regards

 
Pankaj Kumar

Partner

Alpha Capital