Q. My wife and I earn about ₹1.5 lakhs per month. We have savings of ₹50 lakhs in FDs that we want to invest for the long term, 7 to 8 years, in a portfolio management service (PMS). How do we choose the right PMS?
A Portfolio Management Service (PMS) is managed by a professional money manager and offers an investment portfolio in stocks, fixed income, debt, cash, structured products, and other individual securities. It can be tailored to meet specific investment objectives.
Going by what you have stated, the only investments you have is in fixed deposits (FD). Presumably, you have no exposure to financial products like stocks, mutual funds, etc.
When you invest in stocks, you are effectively part-owner of the company. Like an owner, you ought to be prepared to invest a lot of time, money, and knowledge to track performance.
If you lack the time and the skills for such monitoring, you may prefer to invest in mutual funds. A mutual fund is a pool of investments in various companies and is managed by fund managers. Given the professional management and the number of companies involved, a mutual fund is a good option to participate in the financial markets and diversify the risk. Anyone can participate in a mutual fund for a low investment.
While a PMS also has a professional fund manager, you must invest a minimum of ₹50 Lakhs to participate in it. The risk level in a PMS scheme is also very high as it invests in a limited number of stocks. For example, an MF scheme may have 40 to 50 stocks, while a PMS scheme may have 10 to 20 stocks. Hence, PMS schemes are recommended only if you are a seasoned investor, who understands the volatility of the financial markets and already has sufficient corpus accumulated in mutual funds or similar financial products.
Assuming that your total net worth is ₹50 lakhs, it is prudent to start your investment journey (beyond FD) with mutual funds first. Once you understand and can cope with market volatility and after you build up a sizable corpus in mutual funds, then you may explore PMS schemes.
We recommend a minimum tenure of 5 years, while adding PMS schemes into your portfolio. Avoid small-cap, mid-cap, and momentum-driven schemes when you start, as the risk level is very high. Consult your financial advisor before investing.
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