Portfolio Management services are one of the most required when discussing investment management, financial planning, and more. In today’s hectic schedules, handling assets and planning a successful investment strategy have become too complex.
Portfolio management services or PMS, are investment services that provide personalized investment solutions to high net-worth clients (HNIs). Let us know more about portfolio management services and their importance.
What Are Portfolio Management Services?
A Portfolio Management service, or PMS, is a service offered by expert professionals for managing and planning investment solutions for high net-worth clients. The main objective of PMS services is to help their clients reach their financial goals with efficient risk management and investment strategies.
Key Takeaways
- Portfolio Management Services provides investment solutions for clients to help them reach their financial goals.
- If you have very little knowledge of investment and the stock market, then you might as well need a PMS service, considering you have a high net worth.
- There are four major types of Portfolio management services, such as active portfolio management, passive portfolio management, discretionary, and non-discretionary.
- A successful portfolio management services must have proper planning, execution, monitoring and flexibility to adjust to market needs and provide high returns.
Who Needs Portfolio Management Services?
Many high Net worth clients prefer portfolio management services to manage their investments and grow their money over time. You should consider choosing a portfolio management service if you meet any of the following conditions given below.
- You have a high net worth, including different assets.
- You have very little knowledge of investment and the stock market.
- Your schedule is very busy and you do not have time to plan investments and mitigate the risks involved.
- You are not aware of market analysis techniques and volatility.
- You have very little or no knowledge to safeguard your investment in times of uncertain events.
Generally, these services are also availed of by businesses with surplus funds that need professionals to manage their investments. Trusts and estates also hire portfolio management services to manage the wealth collected. These services are of high value and are therefore handled by a team of experts who make sure that your financial goals are achieved.
Types of Portfolio Management Services
There are four major types of Portfolio Management Services, know about them below.
1. Active Portfolio Management
This portfolio management focuses on frequent trading and continuous market analysis, actively buying and selling securities to outperform a specific benchmark. Clients using these services want higher returns and are willing to accept higher risks.
2. Passive Portfolio Management
Passive portfolio management services are counter to active portfolio management with minimal trading and lower risk tolerance. This practice focuses on replicating the performance of a specific index.
3. Discretionary Portfolio Management
This type of PMS service allows PMS organizations to make investment decisions and transactions on behalf of their clients without frequent consent for transactions. Generally preferred by high net worth clients who do not want to get involved and trust the portfolio manager’s instinct.
4. Non-Discretionary Portfolio Management
These services mainly focus on providing investment advice and suggestions to their client. They do not have the authority to make investment decisions or initiate any transactions without the prior consent of their client.
There are other types of portfolio management services, such as customized portfolio management, thematic portfolio management, advisory portfolio management, and more.
Uses of Portfolio Management Services
Portfolio management services offer customized investment solutions to their clients and help them reach their financial goals. They build their client’s portfolios and diversify their investments across various asset classes to maximize their returns.
The ticket size of portfolio management services increased from 5 lakh to 50 lakh in 2019. High net worth clients or companies who do not have enough time, resources, or skills to manage their assets generally use PMS services to grow their money efficiently.
Key Elements of Portfolio Management Services
There are three major elements of a portfolio management service given below.
- Asset Allocation: The portfolio manager makes asset allocations based on the client’s requirements and financial goals. They focus on distributing assets across different classes, such as real estate, stock, securities, commodities, and more.
- Diversification: Diversification is a major step in portfolio management services as it allocates investment across various asset classes to reduce risk factors.
- Rebalancing: Flexibility is a key factor for PMS services. Portfolio managers continuously monitor asset performance and rebalance the portfolio after carefully analyzing market conditions and meeting clients’ financial needs.
Working of Portfolio Management Services
Portfolio Management Services follow step-by-step procedures to manage their client’s investment needs. Check out some of the major steps involved in Portfolio Management services.
- Client Needs Assessment: The first major step is profiling the client’s needs and financial goals. In this early step, the client and portfolio manager sit together, and clients disclose their financial goals, risk tolerance, investment limits, and other requirements.
- Investment Policy Statement (IPS): This is documentation created that includes the client’s investment objectives, risk tolerance limit, asset allocation preferences, and more. It acts as an agreement between clients and the portfolio manager.
- Asset Allocation: The portfolio manager diversifies the optimal asset allocation and distributes assets across various classes, such as equities, bonds, real estate, and other alternative investments.
- Trade Execution: Now, these services provide the best portfolio management advice and make important informative decisions after the client’s approval.
- Monitoring and Reporting: The portfolio manager and the team continuously monitor market performance and make adjustments as needed. They also report regular performance updates to their clients.
- Regulatory Compliance: PMS make sure that they adhere to the regulatory requirements set by the concerned authorities and do not engage in any illegal practices to fulfill client’s needs.
Benefits of Portfolio Management Services
Some of the major benefits of portfolio management services are mentioned below.
- Expert Advice: Plan your financial investment and risk management with experts in the field. They know how to mitigate risk and deal with market volatility. They can help you manage your portfolio efficiently and increase your returns over time.
- Efficient Risk Management: Under the guidance of experts, risk factors are taken into consideration and best strategies are enacted to prevent losses during uncertain market changes.
- Customized Investment Planning: Clients receive customized investment planning to fulfill their goals and get higher returns on their investments. The client’s goals, risk tolerance, expectations, and other major requirements are analyzed to create a customized plan, especially for them.
- Regular Monitoring: An expert PMS service will continuously monitor the performance of your asset investments and make changes if required.
- Diversification: They spread your asset investments across various asset classes to manage risks and tackle any uncertain events that may occur.
- Transparency: They regularly update their clients with the performance of the investment and changes to keep them informed.
- Flexible: The most important benefit of Portfolio management services is that they can quickly adapt and make changes based on market conditions and client goals.
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Portfolio Management Services FAQs
Q1. What are portfolio management services?
Ans: Portfolio Management Services provides investment solutions for clients to help them reach their financial goals. They create a customized investment solutions covering investment planning, risk management, asset allocation, and much more.
Q2. Who needs Portfolio management services?
Ans: Portfolio Management Services are generally used by high-net-worth clients or big firms to manage their assets and help them grow.
Q3. What are the four types of portfolio management services?
Ans: The four major types of PMS services are active, passive, discretionary, and non discretionary.
Q4. How many types of PMS are there as per SEBI?
Ans: As per SEBI, there are three main types of Portfolio management services, discretionary portfolio management services, non-discretionary portfolio management services, and advisory portfolio management services.
