Last Updated on December 29, 2021 at 12:18 pm
A PMS or a portfolio management service is a personalised wealth management service where there is no pooling of assets like a mutual fund. A PMS has a minimum investment of Rs. 25 lakh and unlike mutual funds, each buy and sell transaction by the fund manager is taxable in the hands of the investor. This is a list of PMS returns and risk as on Feb 2019, since inception, last 1,3 and 5 years. This can be used to approximately gauge the best performing PMS in India.
Unlike mutual funds, a PMS has multiple fees like entry and exit loads, management fee and a profit-sharing arrangement above a threshold return known as the hurdle rate. Above this hurdle rate, a percentage of profit will go to the PMS. Since a PMS is an individualised service, the fee is in principle negotiable, unlike a mutual fund.
However, taking into account the profit-sharing arrangement and the taxes, a PMS is not only risky compared to a mutual fund, but it is also expensive. A PMS fund manager does not have the constraints of a mutual fund manager and can take on risky low liquidity stocks.
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Because a PMS is a personalised service, information about PMS performance, returns and risk is not easily available. Investors who can spare Rs. 25 lakh or more tend to use information portrayed in the (social) media or other websites and assume that it is more lucrative to take on more risk by using a PMS. Since such investors have enough wealth to not bother with a careful post-expenses, post-tax annualised return computation, they cannot properly evaluate their choices.
Use the table of contents above to navigate the long tables
Types of PMS
- Discretionary. The client transfers control to the PMS fund manager via a power of attorney and managed the money (buy and sell securities) on behalf of each client
- Non–discretionary Here the client has to confirm PMS fund manager action
- Advisory: Only advice is given. No execution.
PMS monthly reporting by SEBI
SEBI requires PMS fund managers to send a monthly report. This report includes no of clients (different types), asset allocation etc for discretionary and non-discretionary service. In this article, we shall focus on the following number for discretionary PMS only.
Performance of Portfolio manager as on month end in % (On weighted average basis for all clients)
Shepard’s Hill PMS has presented this monthly return data in a neat, accessible format. The PMS return listing reported here is based on this resource.
PMS Returns: Cautionary warning
Unlike mutual funds, PMS services cannot be binned into different categories. The same PMS can offer very different strategies and asset allocation to different clients. So this “weighted average basis for all clients” is a crude estimate of PMS performance. Readers will have to take this contextually. That is they have to first consider the nature of the PMS and then look at the numbers.
SEBI’s monthly report page has the following disclaimer which must be understood carefully:
The performance of the PM has not been approved or recommended by SEBI nor SEBI certifies the accuracy or adequacy of the Monthly Report. The monthly report of the Portfolio Manager (PM) has been prepared by the individual Portfolio Manager as required by SEBI circular on ” Monthly reporting by Portfolio Managers” dated October 08, 2010 and filed with SEBI. The monthly report, inter-alia, contains ‘performance of the PM during the month’. It may be noted that the relationship between the PM and the client is contractual in nature and the PM mainly provides customized service taking into consideration the need of customers, their preferences, risk profiling, suitability etc. Further, no pooling is allowed and no units are issued as in the case Mutual fund. Therefore, the performance of one portfolio manager may not be comparable with the performance of another.
Given all this, this return listing must be used to approximately evaluate PMS risk and reward performance on an absolute level and not relatively. For the same reason as in the above quote, I have not included index returns or mutual fund returns. Only the individual PMS client should compare her portfolio performance with an index or any given mutual fund by investing the same (imaginary) amount in the index or fund on the same date and compare post-tax, post expense ratio returns.
This is not possible with the weighted average return shown above and would be incorrect to do so. However, investors can compare the risk calculated with the monthly returns with that of active or index mutual funds.
Do not take these numbers at face value. Dig deeper and ask for real numbers from the PMS before putting your money
Repeat, Kindly do no go by these numbers alone. Do your own research
Explanation of terms in the return lists
- Starting month: Corresponds to the month of 1st monthly return listing at SEBI
- Ending month: corresponds to the month of the last return listed
- Current Value of Rs. 1000: Assuming Rs. 1000 was invested one month before the starting month, this is the current value at the end of the ending month.
- Absolute return: (Current value – 1000)/1000. This is the cumulative return plotted in the ShepardHill website
- No of months: Represents the months from starting to ending month
- No of months for which returns are missing: Months were data is missing at the SEBI website. Thus if we have 40 months and 2 months data missing, the no of actual month returns is 40-2 = 38. We assume that the investment value remains unchanged over the missing months.
- The standard deviation of monthly Returns: This is a measure of the volatility of the weighted average monthly return
- Approximate annualized return (AAR): This corresponds to the Rs. 1000 investment made. The formula is:
Current value = 1000 x (1+ AAR)^years
Use the table of contents above to navigate the long tables
CAUTION: The monthly returns reported by LIC, UTI, IDBI and others seem to be too high each month. It is possible that they are not monthly returns and possibly annualized. In that case, they are probably fixed income (bond) returns. Therefore I advise you to ignore them. Caution issued in response to comments below
PMS services with low risk and above 18% approx annualised return over 3 and 5 years
We shall define low risk as a standard deviation lower than the median standard deviation. AAR of 18% before expenses and taxes is the minimum requirement for a PMS to be worth it. Perhaps 18% is on the lower side! The following listing is in no particular order. Ones in blue may have an issue with monthly returns.
- MOTILAL OSWAL ASSET MANAGEMENT COMPANY LIMITED
- UTI ASSET MANAGEMENT COMPANY PVT LTD
- BANYAN TREE ADVISORS PRIVATE LIMITED
- STATE BANK OF INDIA
- LIC MUTUAL FUND ASSET MANAGEMENT LTD
- ICICI SECURITIES PRIMARY DEALERSHIP LTD.
- DOHA BROKERAGE AND FINANCIAL SERVICES LTD
- IDBI CAPITAL MARKET SERVICES LTD
PMS services with low risk and above 18% approx annualized return over 3 years
Ones in blue may have an issue with monthly returns.
- LIC MUTUAL FUND ASSET MANAGEMENT LTD
- IDBI CAPITAL MARKET SERVICES LTD
- Indiabulls Asset Management Co. Ltd.
- ICICI SECURITIES PRIMARY DEALERSHIP LTD.
- STATE BANK OF INDIA
- ZEN WEALTH MANAGEMENT SERVICES LIMITED
- UTI ASSET MANAGEMENT COMPANY PVT LTD
- DOHA BROKERAGE AND FINANCIAL SERVICES LTD
- Sirius Advisors Private Limited
- Infinity Alternatives Investment Managers Private Limited
- Shroff Securities Private Limited
- TRUSTLINE HOLDING PVT. LTD.
- MASTER PORTFOLIO SERVICES LTD
- BELLWETHER CAPITAL PRIVATE LIMITED
- MOTILAL OSWAL ASSET MANAGEMENT COMPANY LIMITED
- Alder Capital Advisors LLP
- IndiaNivesh Investment Managers Private Limited
- Accuracap Consultancy Services Private Limited
- QUEST INVESTMENT ADVISORS PVT. LTD.
- MIV INVESTMENT SERVICES PVT. LTD.
- A C Choksi Share Brokers Private Limited
- ENAM ASSET MANAGEMENT CO.PVT.LTD
- JANAK MERCHANT SECURITIES PVT LTD
- KARMA CAPITAL ADVISORS PVT. LTD.
- WADIWALA SECURITIES PRIVATE LIMITED
- BANYAN TREE ADVISORS PRIVATE LIMITED
- Laburnum Capital Advisors Private Limited
PMS services with low risk and above 18% approx annualized return over 5 years
Ones in blue may have an issue with monthly returns.
- ALCHEMY CAPITAL MANAGEMENT PRIVATE LTD
- ANAND RATHI ADVISORS LIMITED
- SUREFIN FINANCIAL CONSULTANTS PVT. LTD
- PhillipCapital (India) Private Limited
- MOTILAL OSWAL ASSET MANAGEMENT COMPANY LIMITED
- UNIFI CAPITAL PRIVATE LIMITED
- UTI ASSET MANAGEMENT COMPANY PVT LTD
- BANYAN TREE ADVISORS PRIVATE LIMITED
- Multi-Act Equity Consultancy Pvt Ltd
- STATE BANK OF INDIA
- LIC MUTUAL FUND ASSET MANAGEMENT LTD
- ICICI SECURITIES PRIMARY DEALERSHIP LTD.
- DOHA BROKERAGE AND FINANCIAL SERVICES LTD
- IDBI CAPITAL MARKET SERVICES LTD
Some of the numbers are bizarre. They are not wrong but you need to be careful before taking them seriously. The PMSes are ranked in terms of increasing risk.
Download the PMS returns data. All returns are as of Feb 2019.
Analysis & Summary
Please note that the above returns are for a single investment made and compounded with the average weighted monthly return. This technically should not be compared with the index or mutual funds. Sorting PMS by increasing risk we find that many do low volatility in the weighted average. How much the data is accurate is another problem as SEBI does not certify these.
Also, the tax is not factored in. Therefore it should be clear that a PMS is essential a black box with scanty insignificant information reported. Unless you have money which you do not care about, do not use a PMS. There has to tighter disclosure norms based on client profile and asset allocation for a reasonably informed decision.
The above numbers help you decide which PMS services to avoid. It can be used to create a short list of the best performing PMS in India as on Feb 2019 as listed above. Look for a 5Y old PMS and compare since inception, 5Y and 2Y returns and risk. You can plot the monthly returns and cumulative absolute return from the shepherd hill site and get a visual fee of the volatility.
Talk to the fund managers, read about their investment philosophy. Ask for performance stats and then start slow. Start with a non-discretionary service and if comfortable convert to a discretionary service.
Kindly do no go by these numbers alone. Do your own research
Personal take: I prefer much better control of my money. So at the cost of possibly higher returns, I will stay away from a PMS. How about you?
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