Business · March 3, 2020

Types of Portfolio Management Services



WHY DO WE NEED PORTFOLIO MANAGEMENT SERVICES?

Investing in the stocks and shares market is not simply about buying up and hoarding as much as you possibly can. When you set out on the road of investing, you should always begin with a clear plan of where you want to be after a certain amount of time. You need to take advice from experts and devise a strategy that can take you towards your goal. Trying to do it all alone is unlikely to work out favourably for you. Enlisting the services of a professional Portfolio Manager will take much of the stress and worry away from you, and allow you to feel safe in the knowledge that your best interests are being looked after by somebody who has the experience and skills that you don’t. Before you go off and do a search for the best PMS service provider in India, let’s take a little bit of time to understand the various types of PMS service in India.

ACTIVE PORTFOLIO MANAGEMENT

This type of portfolio management depends entirely on the skill of your designated portfolio manager. He will attempt to beat the system by using his own research, judgement and speculation to invest in companies shares which he believes have the potential to rise in value. They look for stock they believe to be undervalued and buy in the hope that their value will climb. This may be considered more risky for the investor, but should you discover a skillful manager, the rewards can be high. A wise active manager would spread the investments over several different sectors to minimize the effects of a loss in one area. It is never wise to place all your eggs in one basket when it comes to investing.

PASSIVE PORTFOLIO MANAGEMENT

The opposite of the above. With this method, the manager will be much more cautious when selecting potential companies in which to invest. The theory adhered to is that of the ‘Efficient Market Hypothesis’. This states that it is impossible to beat the system (the very goal of Active Portfolio Management) consistently. It rather concentrates on long-term smaller gains in areas considered to be traditionally more reliable. This practice in itself can be controversial. Some people firmly believe in it while others refute its reliability. Nothing can be assumed, and nothing is fool-poof in the world of investment. The emphasis is on index funds that have low turnover but proven long-term worth.

DISCRETIONARY PORTFOLIO MANAGEMENT

This form of management requires very little input from the investor himself. After an initial consultation and agreement on goals and strategies, the investor hands over the cash, and the manager gets to work. The manager is given full freedom to make investments, purchases, sales etc based on his own discretion. He is not required to notify or seek permission from the investor before taking any decision. This works well for investors who have considerably large amounts to play with yet do not need or want the hassle of thinking about their investments and making decisions. They prefer to pay for the expert knowledge and skills of the manager and trust him to act in a responsible manner.

NON-DISCRETIONARY PORTFOLIO MANAGEMENT

The opposite of the above. This option requires the input of the investor himself at every step. No decision will be taken by the manager without first discussing with, and taking the permission of the investor. In this case the manger is acting purely in an advisory role. His service is his provision of expert knowledge and advice. He will explain the risks and benefits of making potential purchases and sales of stock, but the final decision of whether to act on his advice or go against it is entirely in the hands of the investor. This puts the investor in direct control of where his money goes, but does require time and thought on his part. This is the least widely-available type of portfolio management, but is available from some of the top PMS in India.

PMS BAZAAR is one such provider who offers all of the above types of Portfolio Management Services. They are always happy to help an investor considering employing the services of a Portfolio Manager.