What is Portfolio Management Services: Discretionary vs. Non-discretionary PMS?

Portfolio Management Services (PMS) is a tailor-made investment service offered to cater to the investment objective of the niche segment of investors with a minimum ticket size of Rs. 25 lacs. The clients can be Individuals or Institutions with high net worth. In simple words, a portfolio management service provides professional management of your investments to create long term wealth. The primary aim of PMS is to provide over and above the average returns to the investors. PMS Investors get ownership in the individual shares as the stocks lie in the client’s Demat, unlike mutual funds. Investors have a Demat and a bank account in their name with the power of attorney (POA) in favor of PMS Manager.

Discretionary PMS – In a discretionary portfolio, the manager independently manages the funds of each client in accordance with the needs of the client

Non-discretionary PMS – In a Non-discretionary Portfolio, the manager manages funds as per the client’s direction.

Why Portfolio Management Services

Flexibility:  Unlike mutual funds, the PMS Manager has a fair amount of flexibility in terms of sectoral allocation, stock selection and maintaining cash position.

Transparency:  There is far more comprehensive communication, performance updates, fund manager access, reporting, etc.

Focused & Concentrated Portfolio Generally, the PMS portfolios are far more concentrated comprising of 10 – 25 stocks, unlike MFs wherein the portfolios are quite diversified. Concentrated and focused portfolios in the case of PMS help in significant outperformance and alpha generation in the longer run.

Taxation in Portfolio Management Services:

Gain in the PMS is taxed as capital gains. If the holding of the stock is less than 12 months, it is considered as STCG (Short Term Capital Gain) and taxed at 15% + surcharge. In the case of 12 months and above holding it is LTCG (long term capital gain) and taxed at 10% + surcharge. Dividend income is free of tax as the dividend distribution tax is already deducted at the source. However, if the dividend income in a financial year is above 10 lacs, additional dividend income tax is applicable.

Please contact ALTwealth Team for a more informed PMS and AIF Investments….

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