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With so many strategies available in PMS, how can MFDs/advisors choose the right PMS for their clients?
Just like mutual funds, PMS also offers categories like large cap, mid cap, small cap PMS etc. So, while choosing the PMS for your client, you can start by selecting the category first, then check all the available funds in that category. Analyze each one of them on parameters of risk, performance analysis of short term, medium term and long term and the fund manager’s consistency and then go for recommendation.
Also, you should be mindful of the number of stocks in each fund. It is better to go with concentrated portfolio in PMS depending on the risk appetite of the clients.
Under what circumstances, should discretionary and non-discretionary PMS be recommended?
Non- discretionary PMS can be recommended for large volume portfolios. For example, a lot of family offices can choose 2 or 3 non-discretionary PMS providers where they can deploy Rs 150 - Rs 200 crore. In non-discretionary PMS, fund managers will have to take consent of investors. Here investors have a say in the portfolio construction and hence, the fund manager engages with clients deeply to make them aware of opportunities and risks. Generally, the value of trade in non-discretionary PMS is over Rs.10 crore comprising investment in 4-5 stocks.
On the other hand, discretionary PMS portfolio is like a model portfolio. For example, there are 25 stocks in a model portfolio for a month, so every investor that comes for that fund will get the same kind of portfolio. Investors with less than Rs.10 crore can consider this strategy.
PMSs are similar to MFs and Cat III AIFs. Then why do you think that PMS offers diversification to investors’ portfolio?
In my opinion, it is true that majority of work can be done through mutual funds. Mutual fund is a very efficient vehicle because taxation is also in favour of mutual funds. For majority of investors mutual funds is like a stepping stone but as the wealth of investors increases, they want high level of service.
This service can be in terms of more information directly from the fund manager, which can be easily achieved through PMS. Clients migrate from a basic level of service to a premium level of service, so PMS is like a premiumization of investment.
In PMS, the volume of portfolio is larger, so the fund manager doesn’t mind giving some time personally to the client, which adds more value to them. For example, a client in PMS has allocated Rs 3 crore in 6 PMS schemes, so he will meet 6 fund managers, get six different ideas from them and implement it in their own portfolio.
Also, in PMS, a client can get customized options. One can ask the PMS fund manager to restrict certain sectors, which is not possible in mutual funds.
What are the key opportunities for MFDs in PMS?
There is an immense opportunity in PMS with the rise in number of HNIs. Let’s look at them:
- The number of wealthy individuals has been increasing substantially. Even smaller cities have been witnessing growth in the wealthy population
- Many of MFDs’ clients have become wealthy and want to explore new products like PMS and AIFs. If you don’t service them, someone else will
- PMS and AIF pay you commission excluding GST. And as and when you raise GST invoice, the company pays you the GST amount, which the company had collected from investors at the time of charging annual fee
SEBI has allowed PMS players to obtain digital letter and signature instead of handwritten note and wet signature. Does this indicate that PMS clients can be onboarded completely online or are there still some barriers in onboarding new clients digitally? How will this help the PMS industry and distributors to grow business?
A lot of digital onboarding is done through Aadhaar and OTP authentication, where the client information is sent by the distributor to the PMS provider. Then the PMS provider feeds it in the system and seeks OTP for authentication.
Digital onboarding is slightly more expensive than physical onboarding; however, it helps you get the client onboarded faster. The large PMS players can certainly benefit from digital onboarding.