Portfolio Management Service (PMS), as offered by a large number of PMS companies, has a very concentrated portfolio consisting of about 20 high-conviction stocks (shares) managed in a very ‘hands-on’ manner by a professional portfolio manager. PMS surged in popularity last year after generating outstanding returns, much over the market indices and even most of the mutual funds, during that bull market (2017-18). However, they also fell equally fast when markets entered a bearish phase later in the year (2018). PMS almost always invest in small companies which have not been discovered by the general investing public – and that precisely is where the risk is.
Such stocks are likely to go up hugely when markets go up but are also almost the first ones to fall down when the tide turns. Eg, one of the most popular PMS was down by about 50% last year-end when markets went down.
PMS are primarily designed for the HNIs (High Net-worth Individuals) as they offer a high level of personalization, entry level is a minimum Rs 25 Lakhs as per the regulations and of course, they work on the principle of high concentrated risks. Despite this fact, PMS remains a popular investment avenue for HNIs especially when the markets are subdued, due to their future high return potential.
Characteristics of PMS
- A high conviction, ‘high Risk- high Reward’ strategy for a long-term investment horizon of 5 years or more.
- PMS get hit the first when stock markets go through a bearish phase. It is not uncommon to find PMS funds eroding upwards of 30% investor value during such times.
- Very concentrated portfolio consisting of around 20 stocks primarily from the mid and small cap sector.
- As per regulations, minimum amount to invest in PMS is Rs 25 Lakhs. However, some companies don’t accept anything less than Rs 50L or even 1 Crore.
- Due to personalized management, PMS have very high expense ratios for the investors, even going up to as high as 4-4.5% per year. Alternately, the charges may be linked to their performance. Eg, a PMS may charge 10% of all profits earned in excess of 10% annualized returns, or 20% of profits earned in excess of 12%, etc. Such fee structures can eat away significant portions of the overall returns over a period of time
PMS returns with the safety of Mutual Funds is an alternative we suggest…
Ever since the 2017-origin bull market ended, the mid cap and the small cap segments have been going through a rough patch and have been two of the worst performing segments in the entire stock market. The downward spiral has been so severe and prolonged that large number of even seasoned investors have abandoned these segments. However, the segment is now probably at its lowest point and a turn-around seems quite imminent. Some very good stocks have been unreasonably beaten down and present a good buying opportunity – that is why some of the good mutual fund managers are quietly buying them right now. If one learns to ignore all the negative hype surrounding elections scare, doomsday gossips, performance of Indian economy and the likes, it is possible to generate PMS like returns over a long-term horizon of 5 years or so from now by choosing the right mid and small cap Mutual Funds (MFs) combinations now.
That is what we are proposing and are hence offering our own version of PMS using MFs. By researching and investing in a carefully curated list of select mid and small cap mutual funds, we not only provide the opportunity for possible considerable gains but also maintain significantly lower risk than a PMS.
What advantages would such a strategy have over a PMS?
- There are likely to be 4-5 funds in the portfolio being proposed by us. Typically, each such fund would invest in about 30-70 stocks compared to the an entire PMS portfolio investing in about 20 stocks. So, the eggs are definitely not in one basket but rather widely spread, thus evenly and fairly spreading the risk.
- MFs always have much more institutionalized and process driven methodology of selecting, monitoring and turning over stocks than most of the PMS which are generally run by much smaller companies.
- Your costs in our strategy would be typically about half of what a PMS charges. Similarly, the tax on the gains is also likely to be almost negligible.
- Minimum investment is being kept at Rs 5 Lakhs one-time or Rs 85,000/- per month of SIPs over next 6 months, compared to a minimum of Rs 25 Lakhs in a PMS.
How would it work?
- A portfolio consisting of Mid Cap and Small Cap Funds, researched and selected by us, would be created for you under this scheme. It would be kept as a separate portfolio even if you already have your regular investments through us. Its report also will be separately generated.
- The lock-in period in this scheme is 5 years. We may close the portfolio before that and refund you the money if we find very good gains have been made earlier. However, if you wish to exit before while the scheme hasn’t been closed, you would be charged an exit load of 1% of the total portfolio value by us. If the scheme continues beyond 5 years, there would be no exit load.
- The scheme is open for subscription only for one month from now till 15 April 2019. This is to ensure that the investments take place in the current attractively priced markets. However, the period can be extended or shortened depending on how long we think the markets remain under-valued.
- If you decide to invest in this strategy, please invest the money that you don’t require for next 5 years. Also, it is a long-term strategy – neither evaluate its performance in the short term of few months or years, nor get unnerved by market volatilities, which would be very common in such a portfolio.
- Rs 5 Lakhs is the minimum starting point. In case you are comfortable with such a portfolio and its strategy, you may increase your exposure in it, but we do not recommend you to go beyond a maximum of 15% of your overall investments, depending on your risk profile and comfort level.
- There is not likely to be another entry point given in this portfolio after the current initial offer.
- The on-boarding one-time charges would be Rs 2000/- to be paid initially up-front but there would be no other charges from our side for the rest of entire period of the scheme for our monitoring, advising, managing and reviewing the portfolio
Please note that this is a unique strategy devised by us and such an opportunity may not present itself very often. We urge you to make the most of it provided you are prepared for getting into high risk stocks in the stock markets and to wait patiently for 5 years for the intended returns to come.
- This is a High Risk – High Returns, high conviction strategy. While we are very confident of its efficacy and ability to generate very good returns for you in the long-term horizon of 5 years (or earlier) that this scheme is likely to run, there is no guarantee of any returns, including the possibility of a capital loss even though its chances are very low. However, we do promise you a very high level of research, monitoring and sincerity from our side using our wide experience in this field.
- Please note that we would be getting a small commission for the funds subscribed by you under this strategy from the MF companies whose funds are selected by us. In case you wish us to take you through the Direct mode of investing in this strategy, we would charge 1.25% per year as our annual fee since there would be no commissions accruing to us from the mutual fund companies.