What investors should look at when choosing PMS investment? Top 7 factors to consider

Success in equity investing requires a combination of knowledge, patience, and an investor mindset. It also requires constant monitoring.

For investors with a high investible surplus, Portfolio Management Service (PMS) offers the best investment option for wealth creation from equity investing.

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PMS is a customized service where qualified and experienced portfolio managers backed by a research team manage equity portfolios on behalf of HNI clients with the objective of delivering consistent long-term returns while controlling the risk.

As per SEBI norms the minimum ticket size of a PMS investment is 50 lakhs.

We spoke to Achin Goel, Fund Manager of Bonanza Portfolio Ltd and he highlighted 7 important factors to consider while choosing a PMS investment:

Is the PMS provider SEBI registered?

As per SEBI regulations, it is mandatory for PMS providers to be registered with SEBI. This ensures that the PMS is transparent and functions under the framework of guidelines provided by SEBI.

How long has been the PMS been in business?

While investing your hard-earned money with a PMS, it makes sense to choose a provider that is well-established and has been in business from a long time.

What are the returns generated by the PMS in the past?

By checking out the returns generated by the PMS over the last few years, one can get a more accurate picture of the kind of returns that can be expected. It is important to also check by how much percentage the PMS has outperformed the benchmark indices.

While past performance may not necessarily be repeated in future, it can definitely help in understanding the consistency of the PMS in generating wealth.

What are the different types of charges associated with the PMS?

As per SEBI Regulations, the fee chargeable by the PMS provider may be a fixed amount or a performance-based fee or a combination of both.

The agreement between the portfolio manager and the client should describe the quantum and the manner of fees payable by the client for each activity.

Dedicated customer service

When the ticket size of investment is so large, investors often have lots of queries, especially when markets are going through turbulent times. It is important to check if the PMS provider offers dedicated customer service to answer queries raised by investors and if they are easily accessible through phone and email. It is also important to check the usual turnaround time of the support team for replying to queries of the investor.

What theme and approach does the PMS make use of?

The investment theme used by the PMS is a crucial factor to consider as it can give your investment an edge over other PMS schemes in the market.

In case the investment theme is complex, its practicality and expected outcome over the long-term should also be clearly defined.  Hence it is important to understand the same before signing the dotted line.

What risk management strategies does the PMS use to reduce the risk in the portfolio?

Before investing it is important to check the risk management strategies employed by the PMS. Ideally, there should not be an investment of more than 10% in any stock or exposure of not more than 25% in any sector at cost level.

It is also important to have a diversified portfolio to avoid concentration risk. Investors should check if the PMS uses a staggered approach for investment and rebalances the portfolio if any stock falls more than 30% from its average purchase price.

Apart from these measures, the PMS should also keep a track of the promoter’s actions as well as 3rd party transactions.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)