SEBI

What are the Charges for PMS?

The Portfolio Management Services involve charges known as portfolio management charges, which can be significant in the Indian market context due to the complexity involved in managing an investment portfolio comprising stocks, fixed income, commodities, real estate and other structured products. PMS charges typically refer to the fees levied by a PMS provider for managing an investment portfolio on behalf of individuals. These charges can include management fees, performance fees and other additional charges. 

Overview of Charges for PMS

The charges for PMS can vary between different providers. Below is a comprehensive list of portfolio management charges, including those imposed by some of the top PMS players in India. These charges are determined at the time of investment and reviewed by the investors. Here is an overview of the Charges for PMS:

1. Fixed Charges

This offers simplicity and predictability by charging investors a predetermined annual fee based on their portfolio’s assets under management; the fixed fees range from 0.25% to 2.5%. The fee is calculated based on the average value of investments, specifically the average Net Asset Value at the beginning and end of each quarter.

2. Performance Based Charges

It is designed to incentivize portfolio managers; these plans charge a fee based on performance above the specified benchmark. The performance-based fee is usually a percentage of the profit earned by the individual portfolio above a predefined hurdle rate. The hurdle rate represents the minimum return threshold that must be surpassed before performance fees are applied. 

3. Hybrid Charges

Combining fixed fee and performance-based components, this caters for investors seeking both predictability and potential for additional investors.

4. Entry Load

It is charged by most of the PMS schemes, which varies from 1% to 3%, and applies at the time of investment.

5. Management Charges

It’s a recurring cost for managing the portfolio. Due to customization, it is higher than mutual funds and ranges from 1% to 3% annually.

6. Profit Sharing

It’s a unique PMS scheme which involves sharing profits above a specified threshold.

7. Exit Load

It applies to individuals who exit the PMS for 1 to 2 years, but to encourage long-term investment, there will be no exit loads if an individual stays for more than 2 years.

8. Additional Charges

It includes custodian fees, demat charges, and demat movement charges payable to NSDL or CDSL. Audit fees, brokerage, or transaction charges may also apply.

Understanding of PMS

Portfolio management services (PMS) are specialized offerings provided by a SEBI-registered portfolio manager. The primary goal is to achieve a rate of return while effectively managing risk for individuals. 

Portfolio management services is a facility provided by a portfolio manager aiming to achieve the desired return rate within the specified risk level. An investment portfolio can include a mix of stocks, fixed income, commodities, real estate, other structured products and cash. The PMS creates an Investment Policy Statement to understand the individual’s financial position and needs, ensure that the return objectives align with the risk profile, and consider constraints such as time, tax implications, and liquidity needs.

The portfolio manager, a licensed investment professional, specializes in analyzing investors’ objectives and possesses extensive knowledge of various market instruments. These charges compensate the portfolio manager for their expertise in making informed investment decisions that align with the investor’s goals.

Learn about the PMS Charges While Opening a PMS Account

Before a Portfolio manager begins managing an individual’s funds or portfolio securities, the individual must learn about the PMS charges levied on every step of opening a PMS Account:

1. Investment in the PMS

A one-time fee is charged when investing in the PMS, typically between 1% and 3% of the investment amount. A portfolio includes stocks, fixed income, debt, structured products, and other securities, which primarily serve high-net-worth individuals and institutions.

2. Select a PMS Provider

Select SEBI-registered PMS providers, including equity broking firms and wealth management services. A recurring fee for managing the portfolio varies from 1% to 3% annually or is charged quarterly.

3. Open a Bank or Demit Accounts

Separate bank accounts and demat accounts are required to be opened in the individuals’ names. This includes custodial fees for holding the securities. Demat charges and transaction fees are payable to NSDL or CDSL.

4. Funding and Profit Sharing

Gains or dividend payouts from the investment will be credited to the individual’s bank account. The profit-sharing mechanism involves a guaranteed basic profit, with profits above this threshold shared between the individuals and the PMS, often in the 80:20 ratio or depending upon the threshold limits. The profit-sharing percentage is also decided while making an agreement, which differs from one service provider to another.

What is the Minimum Investment Required for PMS?

SEBI has been regulating the PMS industry for decades to protect small investors from the unpredictable nature of PMS dealings, SEBI manages a minimum investment amount. According to SEBI norms, a PMS account requires a minimum investment amount of Rs 50 Lacs to be maintained. 

PMS offers a premium service with higher fees and potential profit-sharing based on performance. It is designed for individuals seeking extensive customization and personalized portfolio management services.

PMS Charges Imposed by Leading PMS Service Provider

Here are the PMS charges imposed by major PMS service providers in India:

1. Porinju Velliyath

The minimum investment required for PMS is Rs 50 Lac. Recent evaluations show that the portfolio management services have delivered returns of 35%, increasing to 47% in the last year. This PMS does not impose any entry or exit fees on its investors. It charges a 2% fixed management fee and an additional 10% annually on the performance returns above the specified benchmark.  

2. Motilal Oswal

Motilal Oswal, founded in 1987, is one of the largest full-service stockbrokers. PMS is a prominent offering of Motilal Oswal, particularly suitable for short-term and mid-term investors, featuring small-cap and mid-cap stocks. The minimum investment required for this PMS is Rs 50 Lac. It imposes a fixed dee ranging from 2% to 2.5%, charges 0.3% brokerage per cash market transaction and applies an exit load of 1% to 2%.

3. ASK Wealth

ASK Wealth is an asset management company established in 1983 and famous as an OMS provider in India. It imposes a 2.5% fixed fee plus 20% profit participation on returns exceeding 10%.

4. Alchemy PMS

Alchemy PMS imposes a 2.5% fixed maintenance charge of around 2.5%.

5. Kotak PMS

Kotak PMS is widely recognized as a top provider of PMS nationwide, delivering enhanced returns through a team of Knowledgeable portfolio managers dedicated to PMS individuals. The service entails a fixed annual fee of 2.5% as a management fee, charges 0.1% brokerage per transaction and imposes an exit load ranging from 1% to 3% depending on the holding period. 

6. IIFL PMS

IIFL, established in 1995, is renowned for its portfolio management services. It employs various strategies to manage investment portfolios, focusing on large-cap, small-cap, and diversified approaches. Drawl charges from the organization range from 1.3% to 2.3% of the total withdrawn amount if withdrawn within a year.

7. ICICI PMS

ICICI PMS levies a 1 to 3% fixed fee per year and a 2 to 2.5% exit load, depending on the exit timings.

8. Birla Sun Life PMS

Based on the holding period, Birla Sun Life PMS imposes a 2.5% upfront fee and 1 to 2.2% exit load.

9. Angel Broking

Angel Broking applies a 2% upfront fee and 0.5% brokerage per transaction in the cash segments.

Tax Implications for PMS

PMS has significantly grown since its introduction in India in 1993 under SEBI PMS rules, and understanding PMS taxation is crucial for investors interested in their post-tax earnings. PMS taxation differs notably from mutual fund taxation because PMS transactions are considered direct purchases and stakes in assets on behalf of the investors.

In PMS, investors own the stocks directly, unlike mutual funds, where ownership is indirect through units. PMS investments are personalized based on risk and individual goals, and they do not face the exposure restrictions that mutual funds do, such as a cap of 10% of AUM in a single stock.

Additionally, PMS fees can vary based on performance, whereas mutual fund fees are fixed within the expense ratio. The minimum investment for PMS is Rs 50 lac, significantly higher than the low entry point for mutual funds. Regarding taxation, mutual funds benefit from Section 10 (23D) of the Income Tax Act, which gets exempted from direct taxation. At the same time, PMS transactions are taxed as capital gains directly from the individual’s demat account.

Conclusion

In conclusion, Portfolio Management Services in India offer customized investment strategies but come with varying fee structures that can impact investment returns. With SEBI regulation ensuring transparency and investor protection, PMS caters to high-net-worth individuals seeking personalized portfolio management. Understanding these charges and tax implications is essential for making informed investment decisions in PMS.

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