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Portfolio Management Service (PMS)

Advantages And Disadvantages Of PMS

Advantages of investing in PMS:


(a)High-quality portfolio- It has been noticed that people who manage their own portfolios focus more on price rather than on quality.


(b)Independent Portfolios- PMS portfolios are held individually and therefore unperturbed by other investors’ behaviour.


(c)Consistent returns- PMS offers professional management of investments with an aim to deliver superior risk-adjusted returns. It saves clients from all monitoring hassles with regular reviews and risk management.


(d)Diversified portfolio- Due to market uncertainties, portfolio management services always aim to diversify the risk, thus reducing the impact.


(e)Scope for higher risk-adjusted returns- Since the portfolio management services have a concentrated portfolio; the chance to generate superior returns is much higher.


(f)Gain knowledge- While an investment management service helps the client reach the specified financial goal; it additionally helps them to boost their financial understanding. Continuous updates about investment methods and technicalities assist the investors to make an informed and educated selection with future investments.


(g)Performance Tracking- Most services have websites or apps which help the investor track the holdings in real-time. Unlike mutual funds, where the investor can apprehend the holdings once during a month or a quarter, this provides the investor with better management of investments.


(h)Maintain liquidity- Healthy liquidity ensures that in times of need, you'll be able to sell one or more of your assets to fulfill your immediate requirements.


Disadvantages of investing in PMS:

  • Tax implications- The tax implications on PMS portfolios are equivalent as those for investors who invest directly. If the stocks are held for greater than one year, long-term capital gain tax @ 10 per cent plus surcharges are levied. If the portfolio manager engages in short-term trading activity, it might result in short-term capital gains, which implies that the investor has to pay tax. Therefore, it is recommended to hold stocks for more than 3 to 4 years.
  • Documentation – Since PMS requires the opening of a separate Demat account and registering the power of attorney in favour of the portfolio manager, the documentation tends to be burdensome. 

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Units 4/14