Personalized Wealth Creation: Understanding Portfolio Management Services in India

Investing is often perceived as complex, and for many individuals, the sheer number of options can be overwhelming. One investment avenue that has gained traction among high-net-worth individuals (HNIs) across globe is Portfolio Management Services (PMS). Unlike mutual funds or traditional stock-picking strategies, PMS offers a tailored approach where an expert manager handles the portfolio based on your specific needs and risk tolerance.

Drawing inspiration from investment legends like John C. Bogle and insights from the storied success of organizations like Capital Group, this blog series will explore the intricacies of PMS in India. While Bogle advocated simplicity and long-term focus through index funds, those same principles of disciplined, cost-conscious, and transparent investing can also apply to more personalized investment strategies like PMS.

In much the same way that Capital Group emphasized long-term excellence and rational decision-making, successful PMS management relies on crafting strategies that are designed for sustained growth rather than chasing short-term market fluctuations.

In this post, we will introduce PMS, discuss its unique attributes, and how applying the principles of common sense investing and long-term excellence can benefit those seeking a more customized approach to wealth creation.

What is PMS?

Portfolio Management Services (PMS) offer a unique and personalized approach to investing that stands out from mutual funds or direct stock trading. In PMS, a professional portfolio manager curates and actively manages a portfolio of investments tailored to meet your specific financial goals and risk appetite. Unlike mutual funds where investors pool their resources, PMS accounts are individually managed, allowing for a bespoke investment strategy.

It’s important to emphasize that even within an actively managed framework like PMS, the principles of simplicity, transparency, and long-term thinking should prevail rather than attempting to chase market trends.

In essence, PMS is about giving investors direct control over their wealth with the help of an expert, ensuring that the portfolio aligns with their goals while adhering to disciplined, long-term investment practices.

Why PMS?

It offer a compelling alternative for high-net-worth individuals (HNIs) and discerning investors who seek personalized investment solutions that go beyond the traditional options of mutual funds and direct equity investing. But why should an Indian investor consider PMS?

India’s rapidly evolving financial markets present unique opportunities and challenges. As the Indian economy continues to grow, sectors such as technology, pharmaceuticals, and infrastructure are booming, creating fertile ground for long-term investments. PMS allows investors to capitalize on these opportunities with a highly customized approach. The total assets under management (AUM) of the PMS industry in India have nearly tripled in the last seven years, rising from ₹10.45 lakh crore in March 2016 to ₹28 lakh crore by March 2023​ (Business Today)​ (Business Today). 

Unlike mutual funds that operate on a one-size-fits-all basis, PMS managers tailor portfolios to the individual investor’s specific financial goals, risk tolerance, and long-term vision.

Generally, investment journey was presented over-complicated; however by choosing a PMS, you allow a professional manager to filter out the noise, focusing on fundamental, long-term investments. This reduces the need for constant trading and speculation, aligning with Bogle’s principles of low-cost, disciplined investing.

In India, where market volatility can often tempt investors into short-term speculation, PMS offers a steady hand that guides portfolios based on researched, high-quality opportunities. This aligns with the global best practices, which emphasizes that long-term success comes from understanding market dynamics deeply and investing with patience and foresight.

Indian Context

In India, PMS is particularly suited for those looking to invest in high-growth sectors, including emerging industries and niche opportunities that require a more hands-on approach. With minimum investments typically starting at INR 50 lakhs, PMS attracts HNIs and investors who wish to have direct ownership of individual securities, giving them greater control over their wealth.

Indian investors also benefit from the regional expertise that PMS managers bring to the table. While Bogle advocated for simplicity and the power of indexing, PMS managers in India apply similar philosophies by crafting portfolios that are transparent, straightforward, and aligned with the country’s unique growth opportunities. They understand the nuances of Indian sectors, government policies, and macroeconomic trends, positioning their clients to capitalize on the nation’s growth trajectory.

Furthermore, PMS offers greater flexibility in asset allocation compared to mutual funds. A PMS manager can swiftly respond to changes in the Indian market, making tactical shifts in the portfolio to protect capital or seize emerging opportunities. This active management is particularly beneficial in a dynamic, fast-growing economy like India, where opportunities can be sector-specific and often require deep insights to navigate effectively.

The number of investors availing PMS services in India has also seen significant growth. The total number of clients increased from 52,288 in FY16 to nearly 144,000 in FY23​ (Business Today). This reflects a rising trend among wealthy Indians to opt for more personalized and actively managed portfolios.

Who Should Consider PMS?

PMS are not for everyone. PMS is best suited for investors who meet certain criteria and have specific financial goals with long term focus on wealth creation and prefer to delegate the day-to-day management of their portfolios to professionals. These investors understand the importance of research, expertise, and active monitoring in managing their wealth but may not have the time or inclination to manage their own investments.  

According to Securities Exchange Board of India (SEBI), PMS typically requires a minimum investment of INR 50 lakhs, making it accessible primarily to those with substantial financial resources.

PMS products have consistently outperformed traditional investment vehicles, particularly in the mid-cap and small-cap segments, which are a focus for many PMS managers​ (Business Today). For example, PMS in India has seen an average Compound Annual Growth Rate (CAGR) of 16% over recent years​ (mint). Also, the industry is expected to continue expanding rapidly, with projections suggesting that the AUM will reach ₹43.64 lakh crore by 2028 due to a 26% CAGR​ (Business Today)​ (mint).

Therefore, whether the objective is capital appreciation, income generation, or risk management, PMS managers can craft bespoke portfolios that fit the client’s specific needs.

Key Takeaways

With the PMS industry’s AUM nearing ₹30 lakh crore and continuing to grow at a rapid pace, PMS remains a robust option for affluent investors looking for a personalized approach to wealth management​ (Business Today). Here are the main takeaways:

• Tailored Investment Approach: PMS provides a highly customized strategy that aligns with each investor’s financial goals, risk tolerance, and time horizon. This personalized approach ensures that every investment decision is made with the client’s unique objectives in mind.
• Long-Term Focus: Inspired by John C. Bogle’s emphasis on disciplined, long-term investing, PMS managers focus on selecting high-quality investments designed for steady growth over time, avoiding the pitfalls of short-term speculation.
• Professional Expertise: PMS offers investors access to seasoned portfolio managers who bring deep research, strategic insights, and experience to the table. Drawing lessons from Capital: The Story of Long-Term Investment Excellence, this expertise ensures that every decision is backed by thorough analysis and long-term thinking.
• Control and Flexibility: PMS offers more control over investments compared to mutual funds, allowing investors to directly own the individual securities in their portfolios.
• Indian Market Opportunities: PMS is particularly suited for Indian investors who want to capitalize on the country’s fast-growing sectors like technology, pharmaceuticals, and infrastructure. PMS managers bring regional expertise that helps navigate the nuances of the Indian market.

So, for investors looking to strike a balance between active involvement and professional guidance, PMS provides an ideal platform to grow wealth steadily, with the confidence that comes from a well-researched and deeply personalized approach.

Note: The content in this blog post is for informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any specific securities. It does not constitute investment research or financial advice. Always consult with a qualified financial advisor or conduct your own research before making any investment decisions.