How Does A Portfolio Management Service Work?


PMS (portfolio management services) are investment services that a portfolio manager offers. In PMS, the manager helps to manage funds and invest them in stocks, fixed income, debt and cash. Investors who invest in PMS (portfolio management services) own individual securities, unlike mutual fund investors who own particular units of funds. In this, the investor has freedom and flexibility to modify the portfolio as per their financial requirements. 

Portfolio Management Service

Investors who invest in PMS are usually the ones who have a high net worth and are looking to invest in assets like equity. The main aim of these investors is long term wealth creation.

Features Of PMS (Portfolio Management Services)

PMS (portfolio management services) has professional management with the goal of improving their performance in long term basis and controlling risk at the same time. The professional management of PMS helps to achieve the desired results more efficiently. 

Risk Control

PMS (portfolio management services) offers high-level professional services that reduce the loss of the chances. A professional team works on eliminating risk so that the client’s investments grow as per their requirements without high risks. The research team identifies various investment tools and grade them as per the risk involved. 


Portfolio Management Services Are Of Three Types

1. Discretionary

In discretionary PMS (portfolio management services), the service provider has a right to make decisions on behalf of the client. In this, the service provider is not bound to consult the client. This makes the service provider the decision-maker, which can be a reason for conflicts later on.

2. Non-Discretionary

In non-discretionary PMS, the service provider gives the client suggestions and ideas according to the risk profile of the client. The decision to trade remains with the client. However, the client only gives orders to the service provider. Thereafter, the service providers carry out the trade.

3. Advisory

In advisory PMS, the service provider only gives suggestions and ideas to the clients for investments according to their risk profile. The decision to trade and execution remains with the client. In this, the investor mainly asks for consultation only.

How PMS Works

Portfolio Management Service

  1. When investors opt for PMS a separate bank account, SEBI opens a Demat account and a trading account. The investment income is credited to the bank account, and the shares are held in the Demat account. In Portfolio management services, the behaviour of individual investors does not affect the performance of funds.

2. When investors opt for PMS, they are supposed to sign an agreement, which specifies the details with strategies and portfolio models. This agreement is approved, and a power of attorney is given to the portfolio manager. As per SEBI’s guidelines, the portfolio managers are supposed to submit performance sheets every six months to their clients. Most portfolio managers provide online statements. 

How Much Return To Expect From An Arbitrage Mutual Fund? Click Here To Know

3. Portfolio management services have a high maintenance fee. Hence, the fee structure of PMS varies between different service providers. It requires an entry fee which varies from 1 to 3%, and this is deducted from the investment value. An annual maintenance fee of 1 to 3% is charged by the service providers. If the client earns more profit than the promised rate, then the service providers keep an average of 10% of the profit as their share of profit. 

4. Portfolio management services taxation is termed as capital gains, and a 10% tax is levied on the investors earning more than 1 lakh rupees as capital gain per financial year. The taxation rules on PMS (portfolio management services) are the same as equity taxation rules.

Portfolio Management Service

5. In PMS (portfolio management services), the investors give money to the fund managers to invest the money on their behalf. Investors can also invest money on their own with the suggestions of fund managers. 

6. PMS is a very diverse and consistent investment option, but it requires a considerable amount of funds and patience as it offers more returns and profit in the longer run. 

7. The functioning of PMS (portfolio management services) is very simple. The investor has to invest the money in various sectors, and the service providers manage their funds, interest incomes, accounts and give them valuable suggestions and ideas to grow the money in the long term with less risk. 

Advantages Of PMS (Portfolio Management Services)

  • An expert manages and monitors the portfolio directly. So, this professional management reduces the risk involved and helps investors to invest in the appropriate funds to earn better interests. 
  • PMS has a diversified investment portfolio, but at the same time, it also focuses on the sector for significant investing as per the investor’s strategies and portfolio. This diversification of funds in various industries and concentrating funds in the focused sector is a result of efficient management that manages the portfolio.
  • There is no maximum limit of investment. Investors can invest any amount in any stock as there are no restrictions defining the maximum amount of investments.
  • PMS (portfolio management services) provides excellent returns and profit in the longer run. If investors invest after proper research while maintaining consistency in their investments and keep patience, then their funds will give guaranteed high returns in the longer term. 

Portfolio Management Service

Disadvantages Of PMS (Portfolio Management Services)

  • PMS (portfolio management services) service providers do not share losses. They only share profits. If an investor faces loss, then the service providers will not be a part of that loss, but if the investors are getting good returns and profits, then the PMS (portfolio management services) service providers deduct their share of profit.
  • As per the guidelines of SEBI, the minimum amount of investment required for investing in PMS (portfolio management services) is 50 lakh rupees. So, this makes it ideal only for investors who significant net worth, small investors cannot invest in PMS (portfolio management services).
  • A high maintenance fee is another drawback of PMS (portfolio management services). The service providers take an average maintenance fee of 1 to 3% per annum. This is a high rate of maintenance fee that makes investing in PMS severe for investors with fewer funds. 

Are You An NRI? Here’s A Fixed Deposit For You In India!


Investing in PMS (portfolio management services) is a perfect option because it gives high returns and profit in the longer run. But, it is not ideal for investors with fewer funds. As per SEBI guidelines minimum of 50 lakh rupees is necessary to invest in PMS (portfolio management services). This is because PMS has a very high fund requirement. So, investors with fewer funds should prefer other investment tools as PMS (portfolio management services) has a very high annual maintenance fee. PMS (portfolio management services) gives good returns and is very profitable in the longer run, but it also requires highly efficient management and lots of patience. 

Portfolio Management Service

Investing in portfolio management services can also result in losses; we advise maintaining consistency and patience while investing. The working of PMS (portfolio management services) is very simple. Hence, it is appropriate for people willing to give a power of attorney over their funds to fund managers. The service providers either make the decisions on behalf of their clients or give them ideas and suggestions. The functioning of PMS (portfolio management services) is very simple, but it requires lots of funds, consistency and patience. These funds perform excellently in the longer run.


Please enter your comment!
Please enter your name here