Portfolio Management Service (PMS) is a facility offered by a portfolio manager with the intent to achieve the required rate of return within the desired level of risk. An investment portfolio can be a mix of stocks, fixed income, commodities, real estate, other structured products, and cash. A portfolio manager is a licensed investment professional who specializes in analyzing the investment objectives of the investor and has a vast knowledge of the various instruments in the market. The portfolio manager is better positioned to make informed decisions for investments in securities as opposed to a layman. PMS is a customized service offered to High Net-worth Individuals (HNI) clients. The service is tailored as per the investor’s return requirements and the ability and willingness to assume the risk. An Investment Policy Statement (IPS) is drafted by a PMS to understand the financial position and needs of the client. The portfolio manager ensures that the return requirements coincide with the risk profile. Before executing the optimum portfolio, PMS also studies the various constraints such as time horizon, tax applicability, liquidity, and other unique considerations of the client.
Portfolio Management Service
Portfolio Management Service Service By MoneyCare Financial Services
It is quite clear that in current times where the conventional methods of keeping money like banks, fixed deposits do not grow the capital at all, we must look to make a well-balanced Portfolio. A good portfolio is a good mix of different kinds of assets where funds are allocated according to one’s own preferences and risk-taking ability.
What is a Portfolio Management Service?
What does Portfolio Management Service cover?
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Benefits of Portfolio Management Service:
- Allocation of Funds for Maximum Returns – Portfolio management is done with many factors in mind like desired returns, risk-taking capacity. etc. If you actively manage your portfolio, you can ensure to maximize your returns on your hard earned capital. A good portfolio can earn you good returns but actively managing that portfolio has the potential of getting you even bigger returns.
- Reducing Risk – This is one of the most important benefits of portfolio management. You can adjust the risk you are taking on a specific percentage of your capital. There are all kinds of financial instruments available. Fixed deposits and debt funds are some of the examples of the least risky instruments with low returns, whereas investments in the equity market are quite risky but have the potential to earn very good returns.
- Diversification – This is also one great advantage of having a well-balanced portfolio and managing it actively. Diversification means the allocation of funds in different types of financial instruments. It protects against the risk posed by one asset. In the case of stocks investments too, diversification is suggested in stocks across different sectors of the economy.
- Tax Planning – Having a portfolio of investments having fewer tax obligations is a wise financial decision. Tax planning can be done as part of portfolio management. Investments of some amount of one’s capital in financial instruments like PPF, PF, etc. are good ways of saving a good amount of tax payments.
- PMSes have model portfolios that they furnish when soliciting clients. The PMS model portfolio may be assessed for a track record of company selection and overall performance against the market index.
- The performance of the portfolio is solely dependent on the manager’s ability to outperform the market. Therefore, a crucial aspect of selecting PMS is conducting due diligence of the portfolio manager. A portfolio manager’s educational background and experience ultimately point to the competency and expertise that they bring to the fund.
- The investment strategy is another parameter that can give PMS an upper hand over other schemes available in the market. It makes sense for the investor to understand the strategy before committing funds. If the strategies are complex, the viability of such strategies over the long-term should be outlined transparently.
- The fee arrangement of the PMS based on the performance of the manager should serve a win-win situation. The profit-sharing of returns is typically 20 percent. Fees charged for the management of the fund should not be over industry standards, which is in the range of 1 to 3 percent. A hurdle rate clause ensures profit sharing with the manager only if the performance of the fund beats the minimum required hurdle rate.
- Customer support and transparency are valued by investors, especially for discretionary portfolios. PMSes appraising portfolio performance frequently benefits from customer engagement and establish a long-standing agreement.
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Why is Portfolio Management Service important?
It is quite clear that in current times where the conventional methods of keeping money like banks, fixed deposits do not grow the capital at all, we must look to make a well-balanced Portfolio. A good portfolio is a good mix of different kinds of assets where funds are allocated according to one’s own preferences and risk-taking ability. The task does not just end here at building a portfolio. Active management is better than passive management in terms of returns and minimizing risk. Therefore, managing a portfolio at regular intervals of time is equally important. Managing a portfolio includes active buying and selling assets in order to reap better returns in less time. Portfolio management is important because it covers a certain amount of risk through diversification and shuffling of funds among different assets according to the returns they are generating. It also helps in planning regarding tax obligations. Moreover, it helps in arranging funds in times of emergencies.
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