A Portfolio Management Service (PMS) is a SEBI-regulated investment service where a professional manager runs a segregated portfolio of securities in your own demat/bank account, typically with a minimum ₹50 lakh initial ticket. PMS can be discretionary, non-discretionary, or advisory, with fees often linked to performance using a high-water-mark method. (Securities and Exchange Board of India) (apmiindia.org) (apmiindia.org)
Why this matters
For affluent investors, PMS sits between mutual funds and AIFs—offering higher customisation and control than funds, with tighter regulation and transparency. Understanding how PMS works helps you choose the right vehicle for concentrated or goal-linked mandates while staying compliant with Indian rules.
What is PMS?
A portfolio manager is a SEBI-registered body corporate that—pursuant to a contract—manages or administers a client’s portfolio or funds (discretionary or otherwise). Here, you directly own the securities; it’s not a pooled product like a mutual fund. (Securities and Exchange Board of India, SEBI Investor)
Key regulatory features
- Client-level segregation: Managers must keep each client’s funds and securities separate, with daily reconciliation and monthly statements. (apmiindia.org)
- Minimum initial investment: The first single lump-sum from a client must be ≥ ₹50 lakh (exceptions apply for accredited/co-investment clients). (apmiindia.org, Securities and Exchange Board of India)
- Direct onboarding option: Investors can be onboarded directly (no intermediary), and distributors, if used, are paid trail-only (no upfronts). (apmiindia.org)
- Quarterly reporting: PMS must send clients a quarterly portfolio report in SEBI-prescribed format. (apmiindia.org)
- Manager financial strength: Portfolio managers must maintain ₹5 crore net worth (with defined calculation and certification). (Securities and Exchange Board of India)
Types of PMS
1) Discretionary
The manager takes buy/sell decisions per your agreed mandate and risk profile. (Securities and Exchange Board of India)
2) Non-Discretionary
The manager recommends, but executes only on your instructions. (Securities and Exchange Board of India)
3) Advisory
No execution; advice only (fees are typically fixed/retainer-style). (See “Fees & charges.”) (apmiindia.org)
What can a PMS invest in?
- Listed equities & debt, and derivatives (exposure capped by client funds and agreement).
- Exchange-traded commodity derivatives (ETCD) allowed via an agreement with the client.
- Related-party exposure capped (e.g., up to 30% of a client’s AUM in associates/related parties). (apmiindia.org)
Note: The framework also standardises valuation, benchmarking, and firm-level performance audits via SEBI/APMI templates and empanelled valuation agencies. (apmiindia.org)
Fees & charges: how they work
PMS may levy management fees, brokerage/custody/demat expenses, and performance (profit-sharing) fees. Key safeguards:
- High-Water-Mark (HWM): Performance fees apply only on gains above the highest previously achieved portfolio value; frequency not less than quarterly. (apmiindia.org)
- Exit load caps: Up to 3% (Year 1), 2% (Year 2), 1% (Year 3), 0% thereafter—unless you’re a large value accredited investor with negotiated terms. (apmiindia.org)
- Associate charges cap: Broking/custody/demat via associates are capped by value and cannot exceed non-associate rates. (apmiindia.org)
Mini “fee waterfall” illustration (HWM + hurdle)
- Capital: ₹50,00,000; Year-end value: ₹60,00,000 → Profit = ₹10,00,000
- Hurdle rate: 10% of ₹50,00,000 = ₹5,00,000
- Performance fee base = ₹10,00,000 − ₹5,00,000 = ₹5,00,000
- If profit share is 20% → ₹1,00,000 performance fee.
(If next year the value falls, no performance fee until the HWM is surpassed again.) (apmiindia.org)
PMS vs Mutual Funds vs AIFs (quick view)
| Feature | PMS | Mutual Fund | AIF (Cat III) |
|---|---|---|---|
| Ownership | Direct, client-segregated | Units in a pool | Units/partnership interests |
| Minimum | ₹50 lakh first cheque | Low retail minimums | Typically ₹1 crore |
| Customisation | High (mandate-specific) | Low–Medium | High (niche strategies) |
| Fees | Mgmt + perf (HWM) | TER (no perf fee to AMC) | Mgmt + perf (varies) |
| Liquidity | T+2/T+3 sales; mandates vary | Scheme-specific | Often lower; strategy-dependent |
Sources: SEBI PMS Master Circular & Regulations; SEBI documents noting comparative minimums for PMS (₹50 lakh) and AIFs (₹1 crore). (apmiindia.org, Securities and Exchange Board of India)
Returns & risk: measuring your PMS
- CAGR: CAGR=(Ending ValueBeginning Value)1/n−1\text{CAGR} = \left(\frac{\text{Ending Value}}{\text{Beginning Value}}\right)^{1/n} – 1
- XIRR: Captures cash flow timing (useful if you top-up/withdraw).
- Risk-adjusted return (Sharpe): Rp−Rfσp\frac{R_p – R_f}{\sigma_p} — compare across PMS or vs benchmark.
SEBI also standardises benchmarks and performance disclosures for comparability. Always read the Disclosure Document and quarterly reports. (apmiindia.org)
Who should consider a PMS?
Suitable for:
- Investors with ₹50 lakh+ to allocate per mandate, seeking concentrated or factor/quality/SMID exposures.
- Those wanting bespoke risk controls (position limits, sector caps, tax-aware selling) and direct ownership.
Think twice if:
- You prefer fully diversified, low-cost passive exposure.
- You need daily liquidity without mandate-level restrictions.
- You’re uncomfortable with manager dispersion (PMS returns vary widely).
Onboarding checklist (India-specific)
- KYC/AML + bank/demat/trading setup with custodian mapping. (apmiindia.org)
- PMS Agreement & Disclosure Document (mandate, fees, risk, benchmark). (Securities and Exchange Board of India)
- Direct onboarding option disclosed; if distributor used, trail-only commissions. (apmiindia.org)
- Confirm reporting cadence (quarterly) and audit of firm-level performance. (apmiindia.org)
- Understand exit loads, HWM, and related-party exposure caps. (apmiindia.org)
Tax treatment (practical view)
PMS holds assets in your name, so gains/losses are generally taxed as if you invested directly (holding period and asset class matter). Keep contract notes, statements, and audit reports handy for filing. For specifics (equity vs debt, set-off rules, surcharge/cess), consult your tax advisor.
PMS vs new “SIF” funds: where does PMS sit today?
SEBI has introduced Specialised Investment Funds (SIFs) with ₹10 lakh minimums and strategy types (e.g., long-short), aimed at experienced but not necessarily HNI investors. PMS remains the route for bespoke, segregated portfolios; SIFs are pooled, strategy-specific funds from AMCs. Consider ticket size, customisation, and liquidity before choosing. (Reuters, The Economic Times)
FAQs
1) Is PMS safer than mutual funds?
Not necessarily. PMS mandates can be concentrated and may take derivative exposure per agreement. Risk depends on strategy and manager discipline, not the wrapper. (apmiindia.org)
2) Can NRIs invest in PMS?
Yes, subject to KYC/AML and FEMA conditions and custodian/broker processes. Ask for NRE/NRO and repatriation specifics in the agreement (varies by provider).
3) How transparent are costs?
SEBI prescribes standard fee illustrations, caps (e.g., exit loads), and associate-party charge controls. All fees must be disclosed up-front and charged on actual AUM, with HWM for performance fees. (apmiindia.org)
4) What documents should I read before signing?
The Disclosure Document, PMS Agreement, and Investor Charter, plus the manager’s track record and benchmark disclosures. (apmiindia.org)
Bottom line
PMS is ideal when you want customised, accountable portfolio management with direct ownership and can commit ₹50 lakh+ per mandate. Evaluate manager pedigree, fee structure (HWM/hurdle), risk controls, and reporting quality before allocating. For broader diversification at lower tickets, consider index funds/ETFs; for niche pooled strategies, compare SIFs/AIFs.
Regulatory sources: SEBI PMS Regulations & Master Circular (minimum ticket, segregation, onboarding, reporting, HWM, exit loads, exposure limits), plus SEBI docs on comparative minimums and SIF context. (Securities and Exchange Board of India, apmiindia.org, Reuters)