5 points to remember while investing in PMS

Portfolio Management Services (PMS) is an equity structured product and can be a good investment option for high-net-worth individuals who are looking for a customised investment solution. PMS is a professionally managed investment where fund managers use their expertise and experience to select and monitor investments.

PMS can be tailored to an investor's specific risk tolerance, investment goals and time horizon. It can also have the potential for higher returns than other investment options, such as mutual funds as PMS managers have more flexibility in their investment decisions. However, it is important to remember that PMS is a high-risk investment and investors should only invest if they understand the risks involved.

Here are five points to remember when an investor is investing in PMS:

Understand risk appetite and investment goals: PMS is a high-risk investment product, so it is important to understand investors’ risk tolerance before they invest. You should also have a clear idea of your investment goals, such as retirement planning or wealth creation. Risk appetite and investment goals also help investors in selecting between different strategies launched by PMS providers. Investors should also consider their investment time horizon as PMS investments can be volatile in the short term.

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Do research on the PMS Provider/Manager: Before investing in a PMS, it is important for investors to do research on the provider as there are many different PMS providers in the market. So, it is important to do research and choose a provider with a good track record and a transparent investment strategy. Some PMS have exit clauses or lock-in periods also, which makes these PMS less liquid and investors should also check exit clauses or lock-in before considering the PMS. Investors should also check PMS providers’ regulatory status and whether they are registered with the Securities and Exchange Board of India (SEBI).

Consider the PMS fees and entry or exit load: PMS investments come with a variety of fees, including management fees, performance fees, setup fees and exit loads. It's important to understand these fees before you invest, so that investors can make an informed decision about which PMS is right for them.

Review the portfolio strategy: Before you invest, investors should review the portfolio strategy of the PMS provider. There are a variety of investment strategies that can be used by PMS providers like growth- oriented, value-oriented, large-cap, multi-cap, etc. Portfolio strategy gives an idea on how a particular strategy invests money and what types of risks they're taking. PMS providers typically offer a variety of portfolio strategies, so it is important to choose a provider that offers a portfolio that is diversified to your risk appetite.

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Get document copy: Before investing, investors make sure that they read the ‘disclosure document’ of that PMS provider and check that it includes everything like, the PMS agreement, fees and other terms of engagement. If anything is not mentioned, make sure to include that in the disclosure document or get that in writing from the PMS provider.

If an investor considers investing in PMS, it is important to weigh the risks and rewards carefully. Also, even though investors trust their PMS provider, it is still important to monitor investment regularly. This will help investors to stay on track with their investment goals and make sure that the PMS is still a good fit for them.

Achin Goel is the Vice President at Bonanza Portfolio Ltd