How does a PMS work?

1. What is the difference between PMS and Mutual Fund?

Feature	PMS (Portfolio Management Service)	Mutual Funds
Investment Customization	High customization according to client preferences	Standardized portfolios based on fund objective
Investment Threshold	High minimum investment, usually starts at ₹50 lakh	Low entry point, options starting as low as ₹500
Ownership	Direct ownership of individual securities	Ownership of units in the collective pool
Regulatory Oversight	Less intensive compared to mutual funds	Highly regulated by SEBI
Fee Structure	Typically higher fees, including performance fees	Lower fees generally, often no performance fees
Risk and Return	Potentially higher risk and returns, dependent on individual management	Diversified risk, potentially lower returns but more stability
Management	Direct involvement by portfolio manager or team specific to an investor's account	Fund manager handles multiple investors' pooled funds.

2. What is the difference between a discretionary portfolio management service and a non-discretionary portfolio management service?

• In discretionary portfolio management service, the portfolio manager individually and independently manages the funds and securities of each client in accordance with the needs of the client.
• Under the non-discretionary portfolio management service, the portfolio manager manages the funds in accordance with the directions of the client.

3. Types of PMS?

• Discretionary PMS: The portfolio manager has full discretion to manage the investor's funds without the need for prior approval for every transaction.
• Non-Discretionary PMS: The portfolio manager suggests investment ideas, but the final decision rests with the investor.
• Advisory PMS: Similar to non-discretionary, but the advisor provides more comprehensive financial advice, potentially involving other aspects of the client's financial life.

4. What is the minimum investment in PMS?

• Minimum Investment in PMS is INR 50 Lakhs.
• Although some PMS may set a higher minimum investment.
• Top-ups can be of any amount and any frequency.

5. Is Partial withdrawal of Portfolio permitted, for the existing clients of Portfolio Managers?

• The client may withdraw partial amounts from his portfolio, in accordance with the terms of the agreement between the client and the Portfolio Manager.
• However, the value of investment in the portfolio after such withdrawal shall not be less than the applicable minimum investment amount.

6. What are the various securities in which a Portfolio Manager may invest a client’s funds?

• Under Discretionary Portfolio Management Service (DPMS), Portfolio Managers shall invest funds of their clients in the securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds through the direct plan, and other securities as specified by the Board from time to time.
• Under Non-Discretionary Portfolio Management Service (NDPMS), Portfolio Managers may invest up to 25% of the AUM of a client in unlisted securities, in addition to the securities permitted for discretionary portfolio management.
• “Unlisted securities” for investment by Portfolio Managers shall include units of Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), debt securities, shares, warrants, etc., which are not listed on any recognized stock exchanges in India.

7. How to open an account in PMS? What is the procedure?

1. Share the KYC, bank, and nominee details with us.
2. Get pre-filled, printed forms from Qode for signatures.
3. Sign and return the forms with 2 passport-size photographs.
4. Waiting period of 3-4 days after form submission.
5. Receive account opening confirmation from Qode along with demat CML and a docket of signed documents.
6. Fund the account by cheque or online transfer.

8. Who can open a PMS account?

• We accept:
  • Individual
  • Joint
  • HUF
  • Corporate / LLP

9. How is a PMS account structured?

• Custodian:
  • Nuvama is our custodian. Your demat account will be opened with Nuvama. Your existing demat cannot be used for PMS operation. The PMS account does not interfere with your personal demat.
  • This new demat account will be under custody and dedicated to PMS investments.
• Bank and Trading Accounts:
  • A separate trading and bank account is not required for PMS operations.
  • We use SBI as our banker and Zerodha for trading.

10. On what basis is the performance of the portfolio manager calculated?

• The performance of a discretionary portfolio manager is calculated using the time-weighted rate of return (TWRR) method for the immediately preceding three years or the period of operation, whichever is lesser.

11. How is TWRR calculated for the purpose of calculating the performance of the portfolio manager?

• The time-weighted rate of return breaks up the return on an investment portfolio into separate intervals, based on whether money was added or withdrawn from the fund.

12. How does taxation work on a PMS investment? What are the tax-related reports provided by PMS?

• Equity Investment (Stocks, ETFs, Mutual Funds)
  • LTCG for investments held for more than 12 months is taxed at 12.5% on realized profits above 1 lakh in a given financial year. For income in the highest tax slab, the effective rate is 14.95% after including surcharge and cess.
  • STCG for investments held for less than 12 months is taxed at 20% on realized profits in a given financial year. For income in the highest tax slab, the effective rate is 26% after including surcharge and cess.
• Debt Investments
  • LTCG - long-term gains are taxed at a flat rate of 12.5% without indexation for holdings of more than 24 months.
  • STCG - short-term gains are added to your income and taxed according to your income tax slab.

13. Are stocks and equity MF’s accepted as part of initial funds?

• Yes, stocks and equity mutual funds are accepted as part of the initial funds. These will then be sold at the fund manager's discretion to reallocate the investments according to the client’s designated portfolio strategy.