Portfolio Management Services By Tanya Spin Portfolio management service (PMS) is a type of professional service offered by portfolio managers

to their client to help them in managing their money in less time. Portfolio managers manage the stocks, bonds, and mutual funds of clients c onsidering their personal investment goals and risk preferences. In addition to money, the portfolio managers manage the portfolio of stocks, bonds, and mutual funds. Benefits of Portfolio Management Services (PMS) * Personalized Advice: Investment advice and strategies from expert Fund Manager s * Professional Management: Money management services that work for client * Continuous Monitoring: Information about client's investment decisions * Hassle Free Operation: High standards of service and complete portfolio transp arency Benefits of Choosing Portfolio Management Services (PMS) Instead of Mutual Funds : While selecting Portfolio management service (PMS) over mutual funds services it is found that portfolio managers offer some very services which are better than the standardized product services offered by mutual funds managers. Such as: * Asset Allocation: Asset allocation plan is tailor made and is designed after t he detailed analysis of client's investment goals, saving pattern, and risk taki ng capacity. * Timing: Portfolio manager analyzes the market and provides his expert advice t o the client regarding the amount of cash he should take out at the time of big risk in stock market. * Flexibility: Portfolio managers do not need to follow any rigid rules of inves ting a particular amount of money in a particular mode of investment, although t hey have to follow rules set up by SEBI. Portfolio Management Payment Criteria: There are types of payment criteria offered by portfolio managers to their clien t, such as: * Fixed-linked management fee. * Performance-linked management fee. In fixed-link management fee the client usually pays between 1-2.5% of the portf olio value. In performance-linked management fee the manager gets around 10-20% of the total profit earned by the client. -------------------------------------------------------------------------------------------------------------------What is Portfolio Management Services or PMS? Portfolio Management Services account is an investment portfolio in Stocks, Debt and fixed income products managed by a professional money manager, that can pot entially 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. You have the freedom and flexibility to tailor your portfol io to address personal preferences and financial goals. Although portfolio manag ers may oversee hundreds of portfolios, your account may be unique. As per SEBI guidelines, only those entities who are registered with SEBI for providing PMS s ervices can offer PMS to clients. There is no separate certification required fo r selling any PMS product. So this is case where mis-selling can happen. As per the SEBI guidelines, the minimum investment required to open a PMS account is Rs . 5 Lacs. However, different providers have different minimum balance requiremen ts for different products. For Eg Birla AMC PMS is having min amount requirement of Rs. 25 lacs for a product. Similarly HSBC AMC is having minimum requirement

of 50 lacs for their PMS and Reliance is having min requirement of Rs. 1 Crore. In India Portfolio Management Services are also provided by equity broking firms & wealth management services. portfolio management services in india Portfolio Management Services (PMS) in In dia Complete GuideThere are broadly two types of PMS 1. Discretionary PMS Where the investment is at discretion of the fund manager & client has no intervention in the investment process. 2. Non-Discretionary PMS Under this service, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decis ions rest solely with the investor. However the execution of the trade is done b y the portfolio manager. 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. Majority of PMS providers in India offer Discretion ary Services. Also Read(Article continues after links): Behave Yourself Financially Bankers are Biggest Mis-sellers How can investor invest in a Portfolio Management Services (PMS)? There are two ways in which an investor can invest in a Portfolio Management Ser vices: 1. Through Cheque payment 2. Through transferring existing shares held by the customer to the PMS account. The Value of the portfolio transferred should be above the minimum investment c riteria. Beside this customer will need sign a few documents like PMS agreement with the p rovider, Power of Attorney agreement, New demat account opening format (even if investor has a demat account he is required to open a new one) and documents lik e PAN, address proof and Identity proofs are mandatory. NRIs can invest in a PMS . The NRI needs to open a PIS account for investing in PMS. The documentation re quired for an NRI, however, is different from a resident Indian. A checklist of documents is provided by each PMS provider. Working of a Portfolio Management Services (PMS) Each PMS account is unique and the valuation and portfolio of each account may d iffer from one another. There is no NAV for a PMS scheme; however the customer w ill get the valuation of his portfolio on a daily basis from the PMS provider. E ach PMS account is unique from one another. Every PMS scheme has a model portfol io and all the investments for a particular investor are done in the Portfolio M anagement Services on the basis of model portfolio of the scheme. However the po rtfolio may differ from investor to investor. This is because of: 1. Entry of investors at different time. 2. Difference in amount of investments by the investors 3. Redemptions/additional purchase done by investor 4. Market scenario Eg If the model portfolio has investment in Infosys, and t he current view of the Fund Manager on Infosys is HOLD (and not BUY ), a new investor may not have Infosys in his portfolio. Under PMS schemes the fund manager interaction also takes place. The frequency d epends on the size of the client portfolio and the Portfolio Management Services provider. Bigger the portfolio, frequency of interaction is more. Generally, th e PMS provider arranges for fund manager interaction on a quarterly/half yearly

basis. Portfolio Management Services (PMS) Charges A PMS charges 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 of 3%. It is charged at the time o f buying the PMS only. Management Charges Every Portfolio Management Services scheme charges Fund Manag ement charges. Fund Management Charges may vary from 1% to 3% depending upon the PMS provider. It is charged on a quarterly basis to the PMS account. Profit Sharing Some PMS schemes also have profit sharing arrangements (in additi on to the fixed fees), wherein the provider charges a certain amount of fees/pro fit over the stipulated return generated in the fund. For Eg PMS X has fixed cha rges of 2% plus a charge of 20% of fees for return generated above 15% in the ye ar. In this case if the return generated in the year by the scheme is 25%, the f ees charged by the PMS will be 2% + {(25%-15%)*20%}. The Fees charged is different for every Portfolio Management Services provider a nd for every scheme. It is advisable for the investor to check the charges of th e scheme. Apart from the charges mentioned above, the PMS also charges the investors on fo llowing counts as all the investments are done in the name of the investor: * Custodian Fee * Demat Account opening charges * Audit charges * Transaction brokerage --------------------------------------------------------------------------------------------------------------------------SECURITIES AND EXCHANGE BOARD OF INDIA SEBI INVESTOR EDUCATION PROGRAMME (PORTFOLIO MANAGERS) 1. Who is a Portfolio Manager?

A portfolio manager is a body corporate who, pursuant to a contract or arrangeme nt with a client, advises or directs or undertakes on behalf of the client (whet her as a discretionary portfolio manager or otherwise), the management or admini stration of a portfolio of securities or the funds of the client. 2. What is the difference between a discretionary portfolio manager and a n on- discretionary portfolio manager? The discretionary portfolio manager individually and independently manages the f unds of each client in accordance with the needs of the client. The non-discretionary portfolio manager manages the funds in accordance with the directions of the client. 3. What is the procedure of obtaining registration as a portfolio manager f rom SEBI? For registration as a portfolio manager, an applicant is required to pay a non-r

efundable application fee of Rs.1,00,000/- by way of demand draft drawn in favou r of Securities and Exchange Board of India , payable at Mumbai. The application in Form A along with additional information (Form A and addition al information available on SEBI Website : www.sebi.gov.in.) submitted to the at the below mentioned address Investment Management Department - Division of Funds- 1 Securities and Exchange Board of India SEBI Bhavan, 3rd Floor A Wing, Plot No. C4-A, G Block,

Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. 4. What is the capital adequacy requirement of a portfolio manager?

The portfolio manager is required to have a minimum networth of Rs. 2 crore.

5.

Is there any registration fee to be paid by the portfolio managers?

Yes. Every portfolio manager is required to pay Rs. 10 lakhs as registration fee s at the time of grant of certificate of registration by SEBI.

6.

How long does the certificate of registration remain valid?

The certificate of registration remains valid for three years. The portfolio man ager has to apply for renewal of its registration certificate to SEBI, 3 months before the expiry of the validity of the certificate, if it wishes to continue a s a registered portfolio manager. 7. How much is the renewal fee to be paid by the portfolio manager?

The portfolio manager is required to pay Rs. 5 lakh as renewal fees to SEBI. 8. Is there any contract between the portfolio manager and its client?

Yes. The portfolio manager, before taking up an assignment of management of fund s or portfolio of securities on behalf of the client, enters into an agreement i n writing with the client, clearly defining the inter se relationship and settin g out their mutual rights, liabilities and obligations relating to the managemen t of funds or portfolio of securities, containing the details as specified in Sc hedule IV of the SEBI (Portfolio Managers) Regulations, 1993. 9. What fees can a portfolio manager charge from its clients for the servic es rendered by him? SEBI Portfolio Manager Regulations have not prescribed any scale of fee to be ch arged by the portfolio manager to its clients. However, the regulations provide that the portfolio manager shall charge a fee a s per the agreement with the client for rendering portfolio management services.

The fee so charged may be a fixed amount or a return based fee or a combination of both. The portfolio manager shall take specific prior permission from the cl ient for charging such fees for each activity for which service is rendered by t he portfolio manager directly or indirectly (where such service is outsourced).

10. Is there any specified value of funds or securities below which a portfolio manager can t accept from the client while opening the account for the purpose of rendering portfolio management service to the client? The portfolio manager is required to accept minimum Rs. 5 lakhs or securities ha ving a minimum worth of Rs. 5 lakhs from the client while opening the account fo r the purpose of rendering portfolio management service to the client. Portfolio manager can only invest and not borrow on behalf of his clients. 11. Are investors required to open demat accounts for PMS services?

Yes. For investment in listed securities, an investor is required to open a dema t account in his/her own name.

12. What kind of reports can the client expect from the portfolio manager?

The portfolio manager shall furnish periodically a report to the client, as agre ed in the contract, but not exceeding a period of six months and as and when req uired by the client and such report shall contain the following details, namely: -

(a) the composition and the value of the portfolio, description of security, num ber of securities, value of each security held in the portfolio, cash balance an d aggregate value of the portfolio as on the date of report;

(b) transactions undertaken during the period of report including date of transa ction and details of purchases and sales;

(c) beneficial interest received during that period in respect of interest, divi dend, bonus shares, rights shares and debentures;

(d) expenses incurred in managing the portfolio of the client;

(e) details of risk foreseen by the portfolio manager and the risk relating to t he securities recommended by the portfolio manager for investment or disinvestme nt.

This report may also be available on the website with restricted access to each client. The portfolio manager shall, in terms of the agreement with the client, also furnish to the client documents and information relating only to the manage ment of a portfolio. The client has right to obtain details of his portfolio fro m the portfolio managers.

13. What is the disclosure mechanism of the portfolio managers to their clients? The portfolio manager provides to the client the Disclosure Document at least tw o days prior to entering into an agreement with the client. The Disclosure Document contains the quantum and manner of payment of fees payab le by the client for each activity, portfolio risks, complete disclosures in res pect of transactions with related parties, the performance of the portfolio mana ger and the audited financial statements of the portfolio manager for the immedi ately preceding three years. Please note that the disclosure document is neither approved nor disapproved by SEBI nor does SEBI certify the accuracy or adequacy of the contents of the Docum ents. 14. Does SEBI approve any of the services offered by portfolio managers?

No. SEBI does not approve any of the services offered by the Portfolio Manager. An investor has to invest in the services based on the terms and conditions laid out in the disclosure document and the agreement between the portfolio manager and the investor.

15. Does SEBI approve the disclosure document of the portfolio manager?

The Disclosure Document is neither approved nor disapproved by SEBI. SEBI does n ot certify the accuracy or adequacy of the contents of the Disclosure Document.

16. What are the rules governing services of a Portfolio Manager? The services of a Portfolio Manager are governed by the agreement between the po rtfolio manager and the investor. The agreement should cover the minimum details as specified in the SEBI Portfolio Manager Regulations. However, additional req uirements can be specified by the Portfolio Manager in the agreement with the cl ient. Hence, an investor is advised to read the agreement carefully before signi ng it.

17. Is premature withdrawal of Funds/securities by an investor allowed?

The funds or securities can be withdrawn or taken back by the client before the maturity of the contract. However, the terms of the premature withdrawal would b e as per the agreement between the client and the portfolio manager.

18. Can a Portfolio Manager impose a lock-in on the investor?

Portfolio managers cannot impose a lock-in on the investment of their clients. H owever, a portfolio manager can charge exit fees from the client for early exit, as laid down in the agreement.

19. Can a Portfolio Manager offer indicative or guaranteed returns?

Portfolio manager cannot offer/ promise indicative or guaranteed returns to clie nts.

20. On what basis is the performance of the portfolio manager calculated? The performance of a discretionary portfolio manager is calculated using weighte d average method taking each individual category of investments for the immediat ely preceding three years and in such cases performance indicator is also disclo sed. 21. Where can an investor look out for information on portfolio managers?

Investors can log on to the website of SEBI www.sebi.gov.in for information on S EBI regulations and circulars pertaining to portfolio managers. Addresses of the registered portfolio managers are also available on the website. 22. How can the investors redress their complaints? Investors would find in the Disclosure Document the name, address and telephone number of the investor relation officer of the portfolio manager who attends to the investor queries and complaints. The grievance redressal and dispute mechani sm is also mentioned in the Disclosure Document. Investors can approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matt er with the concerned portfolio manager and follows up with them.

Investors may send their complaints to:

Office of Investor Assistance and Education, Securities and Exchange Board of India, SEBI Bhavan Plot No. C4-A, G Block,

Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051