If you have ₹50 lakhs or more to invest and want a professional to manage it with a personalised strategy, Portfolio Management Services — or PMS — is worth understanding deeply before you commit. This guide explains how PMS works, what sets it apart from mutual funds, who regulates it, and how to evaluate whether it's right for you.

What Is PMS (Portfolio Management Services)?

Portfolio Management Services (PMS) is a SEBI-regulated investment service where a licensed portfolio manager constructs and manages a customised portfolio of stocks, bonds, ETFs, or other securities on your behalf. Unlike mutual funds, where your money is pooled with thousands of other investors, in PMS you directly own the securities in your own demat account.

This distinction matters. It means full transparency — you can see exactly which stocks you hold, when they were bought, at what price, and why. It also means your portfolio can be tailored to your specific risk appetite, tax situation, and financial goals rather than following a one-size-fits-all scheme mandate.

PMS in India is governed by the SEBI (Portfolio Managers) Regulations, 2020, which replaced the earlier 1993 framework. SEBI requires a minimum investment of ₹50 lakhs and mandates that all portfolio managers be registered with the regulator.

How Does PMS Work? (Step-by-Step)

Here's how the PMS investment process typically unfolds:

Step 1: Risk Profiling and Onboarding. You complete KYC documentation and a detailed risk profiling questionnaire. The portfolio manager assesses your financial goals, investment horizon, liquidity needs, and risk tolerance. This forms the basis of your Investment Policy Statement (IPS).

Step 2: Signing the PMS Agreement. You sign a formal agreement that outlines the investment strategy (called the "Investment Approach"), fee structure, benchmarks, reporting frequency, and exit terms. This is a bilateral contract — every PMS client technically has a unique agreement.

Step 3: Account Setup. A dedicated demat account and bank account are linked to your PMS. An independent custodian holds your securities, keeping them separate from the portfolio manager's own assets. This custodian arrangement is mandated by SEBI to prevent conflicts of interest.

Step 4: Funding. You transfer the committed capital (minimum ₹50 lakhs) to the designated bank account. Some PMS providers deploy the full amount at once; others use a phased deployment strategy over days or weeks to manage entry-point risk.

Step 5: Portfolio Construction. Based on the chosen Investment Approach, the portfolio manager builds your portfolio — selecting securities, determining position sizes, and setting risk limits. In a discretionary PMS, this happens without needing your approval for each trade.

Step 6: Ongoing Management. The portfolio manager actively monitors markets, rebalances holdings, manages cash, and executes buy/sell decisions as per the stated strategy. You receive quarterly performance reports and can typically track your portfolio in real-time through the custodian's portal.

Step 7: Exit or Partial Withdrawal. You can exit the PMS or make partial withdrawals subject to the terms in your agreement. Some PMS providers charge an exit load if you withdraw within a specified period (typically 1 year). The remaining portfolio value must stay above ₹50 lakhs after any partial withdrawal.

Types of PMS: Discretionary, Non-Discretionary, and Advisory

SEBI recognises three distinct types of Portfolio Management Services, each offering a different level of control to the investor.

Discretionary PMS

This is the most common type. The portfolio manager has full authority to make investment decisions — buying, selling, and rebalancing — without seeking your prior approval for each transaction. You define the broad mandate and risk parameters upfront; the manager does the rest.

Best for: Investors who want professional management without day-to-day involvement. Most equity-focused PMS strategies in India operate on a discretionary basis.

Key restriction: SEBI mandates that discretionary PMS can invest only in listed securities. No unlisted stocks, no pre-IPO deals.

Non-Discretionary PMS

Here, the portfolio manager recommends specific trades, but the final decision rests with you. Every buy or sell order requires your explicit approval before execution.

Best for: Investors who want professional research and guidance but prefer to retain control over each decision. Often used by experienced investors who want a second pair of eyes.

Key restriction: Non-discretionary PMS can invest up to 25% of AUM in unlisted securities, including units of AIFs, REITs, and InvITs.

Advisory PMS

The portfolio manager provides investment advice — model portfolios, stock recommendations, asset allocation guidance — but does not execute trades. You act on the advice independently through your own broker and demat account.

Best for: Sophisticated investors who have their own execution infrastructure but want access to institutional-quality research and strategy.

Important note: Advisory PMS is increasingly being distinguished from pure investment advisory services (RIA-licensed), and SEBI has tightened norms around how advisory performance can be reported.

PMS vs Mutual Funds: Key Differences

This is perhaps the most common question prospective PMS investors ask. Here's a clear comparison:

The core trade-off: PMS offers higher customisation, concentration, and transparency, but comes with a higher entry ticket and more complex fee structures. Mutual funds offer simplicity, liquidity, and low minimums.

Who Should Invest in PMS?

PMS is designed for a specific investor profile, and meeting the ₹50 lakh minimum alone doesn't make it the right choice. Consider PMS if:

You understand and can tolerate volatility. PMS portfolios are more concentrated than mutual funds, which means higher potential returns but also sharper drawdowns. If a 15–20% portfolio decline in a quarter would cause you to panic-sell, PMS may not be right for you.

You value transparency and direct ownership. If knowing exactly what you own and why matters to you, PMS delivers this in a way mutual funds cannot.

You want a strategy that isn't available in the mutual fund format. Many PMS strategies — quantitative multi-asset approaches, concentrated best-ideas portfolios, sector-specific high-conviction bets — simply cannot be offered as mutual fund schemes due to diversification and liquidity norms.

You have a long-term horizon. PMS strategies are typically designed with a 3–5 year minimum horizon. Short-term investors are better served by liquid funds or direct equity.

SEBI Regulations for PMS

SEBI's regulatory framework for PMS is robust and has been significantly strengthened since the 2020 regulations. Here's what you should know:

Who Can Become a Portfolio Manager?

Not just anyone can set up a PMS. SEBI's eligibility criteria include:

• The entity must be a company (public or private limited) or an LLP
• Minimum net worth of ₹5 crore, certified by a chartered accountant
• Key personnel must hold NISM certifications (Series-V-A: Mutual Fund Distributors and Series-XXI-A: Portfolio Managers)
• The principal officer must have relevant experience in financial services
• SEBI evaluates the entity's track record, infrastructure, personnel qualifications, and business plan
• Registration is valid for 3 years and costs ₹5 lakhs for renewal
• The portfolio manager must appoint a compliance officer and submit regular returns to SEBI

The application requires submission of a detailed Disclosure Document, draft PMS Agreement, audited financials, and evidence of adequate infrastructure. SEBI scrutinises each application thoroughly — the process typically takes 3–6 months.

Performance Reporting Standards

One of the most significant regulatory improvements in recent years has been the standardisation of performance reporting. SEBI, in collaboration with the Association of Portfolio Managers in India (APMI), has mandated:

TWRR (Time-Weighted Rate of Return): All PMS providers must report performance using TWRR, which eliminates the distortion caused by the timing of client cash flows. This is the global standard (used in GIPS — Global Investment Performance Standards) and allows for meaningful comparison across strategies.

Investment Approach-level reporting: Performance must be reported at the level of each Investment Approach (e.g., "Large Cap Value" or "Multi-Asset "), not cherry-picked individual portfolios. This prevents managers from showcasing only their best-performing clients.

No model portfolio returns: SEBI explicitly prohibits portfolio managers from disclosing model portfolio returns in any client communication. Only actual aggregate performance can be reported.

Annual performance audit: Every PMS provider must conduct an annual audit of firm-level performance data, following standardised Terms of Reference prescribed by APMI. This audit report must be submitted to SEBI within 60 days of the financial year-end.

Monthly reporting to APMI: Portfolio managers must submit monthly performance reports to both SEBI and APMI within 7 working days from the end of each month. APMI publishes this data on its website, enabling investors to compare performance across strategies and providers.

Benchmark standardisation: APMI prescribes a maximum of 3 benchmarks for each strategy (equity, debt, hybrid, multi-asset). The portfolio manager must choose the benchmark that best reflects the core philosophy of their strategy and stick with it. Changing benchmarks requires offering existing investors an exit without any exit load.

The Role of APMI

The Association of Portfolio Managers in India (APMI), incorporated in December 2021 as a Section 8 company, serves as the industry body for SEBI-registered portfolio managers. Think of it as the AMFI equivalent for the PMS industry. APMI's key functions include:

• Prescribing standardised valuation norms (aligned with mutual fund norms)
• Empanelling valuation agencies for debt and money market securities
• Publishing monthly performance data on its website for public comparison
• Setting standards for performance audits
• Acting as the interface between the industry and SEBI

APMI's IA Performance page is the single most authoritative source for comparing PMS performance across providers.

Minimum Investment Requirements

SEBI mandates a minimum investment of ₹50 lakhs for PMS. This threshold was raised from ₹25 lakhs in January 2020 (and before that, from ₹5 lakhs). The rationale is straightforward: PMS involves concentrated portfolios with higher risk, and SEBI wants to ensure that only investors with adequate financial maturity and risk capacity participate.

Key rules around the minimum:

• The ₹50 lakh minimum includes cash and/or securities earmarked for the mandate
• After any partial withdrawal, the remaining portfolio value must stay above ₹50 lakhs
• Some PMS providers set their own minimums significantly higher (₹1 crore, ₹5 crore, or even ₹25 crore) based on their target client profile and strategy requirements

How to Choose the Right PMS

With over 480 SEBI-registered portfolio managers in India, choosing the right one requires diligence. Here's a framework:

1. Understand the Investment Philosophy

Is the strategy fundamental or quantitative? Value or momentum? Concentrated or diversified? Multi-asset or equity-only? The Investment Approach should align with your own investment beliefs and complement (not duplicate) your existing portfolio.

2. Evaluate the Track Record — Correctly

Don't just look at headline returns. Examine:

• TWRR over multiple time periods (1-year, 3-year, 5-year, since inception)
• Performance relative to the benchmark — alpha generation consistency, not just absolute numbers
• Drawdowns — how much did the portfolio fall during market corrections (2018, 2020 COVID, 2022)?
• Recovery time — how quickly did the strategy bounce back?
• Risk-adjusted metrics — Sharpe ratio, Sortino ratio, information ratio
• Upside/downside capture ratios — does it capture more upside and limit downside relative to the benchmark?

3. Scrutinise the Fee Structure

PMS fees are typically structured as:

• Fixed management fee: 1–2.5% per annum on AUM
• Performance fee: 10–20% of profits above a hurdle rate, subject to a high-water mark

The high-water mark is critical — it means the manager doesn't charge performance fees on gains that merely recover previous losses. Always model the total cost impact on your returns over a 5-year horizon.

4. Assess the Team and Organisation

Who is the portfolio manager? What's their experience? Is there institutional depth (research team, risk management, compliance) or is it a one-person operation? What happens if the key person leaves?

5. Check Regulatory Standing

Verify SEBI registration on the SEBI intermediary database. Check for any regulatory actions, complaints, or penalties.

6. Compare Across Providers

Use authoritative platforms to compare PMS performance:

• APMI IA Performance Reports — the official source, published monthly with TWRR data
• PMS Bazaar — comprehensive tracker with 400+ PMS strategies
• PMS AIF World — comparative returns and analysis
• Grey Sky Capital PMS Monitor — independent and simple comparison tool for evaluating PMS strategies and seeing in which decile they were for the selected time frame.

7. Read the Disclosure Document

Every SEBI-registered PMS must publish a Disclosure Document that details the Investment Approach, risk factors, fee structure, portfolio manager's background, and past performance. Read it. It's the most comprehensive single document about any PMS strategy.

Taxation of PMS Investments

Since you directly own the securities in a PMS, taxation mirrors that of direct equity investing:

Listed Equity (held for more than 12 months): Long-term Capital Gains taxed at 12.5% on gains exceeding ₹1.25 lakh per financial year (post July 2024 Budget).

Listed Equity (held for less than 12 months): Short-term Capital Gains taxed at 20%.

Dividends: Taxed at your applicable income tax slab rate.

This is different from mutual funds, where the fund manager's trading activity doesn't trigger tax events for you — only your redemption does. In PMS, every buy/sell within your portfolio can create a taxable event. This makes tax efficiency in portfolio construction an important consideration when choosing a PMS.

Final Thoughts

PMS occupies a specific and valuable niche in India's investment landscape — bridging the gap between do-it-yourself stock picking and the standardised approach of mutual funds. It offers the transparency of direct equity ownership, the discipline of institutional-grade portfolio management, and the flexibility to build strategies that mutual fund regulations simply don't permit.

But it's not for everyone. The ₹50 lakh minimum is just the starting point. The real prerequisites are adequate overall wealth to justify the allocation, the temperament to handle concentrated portfolios through volatile markets, and the willingness to commit to a multi-year investment horizon.

If you're evaluating PMS for the first time, start with the APMI performance data, read the Disclosure Documents of strategies that interest you, and understand the fee economics before committing capital. The PMS industry in India has matured significantly — with SEBI's stringent reporting norms, APMI's standardised audits, and genuine transparency in performance data, investors today have better tools than ever to make informed decisions.

This guide is for educational purposes only. Investment in securities market is subject to market risks. Past performance is not indicative of future returns. Please read all scheme-related documents and the Disclosure Document carefully before investing.

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