Portfolio Management Schemes of Indian Institutional Investors

A Study on Portfolio Management Schemes of Indian
Institutional Investors
TOPIC : Portfolio Management Schemes of Indian Institutional Investors
Submitted By ; Mr. GHANI NAIK
Mcom – 1sem
AICM,
Submitted To ; Dr. KANTHARAJU N P Mcom NET KSET (P.hD)
ASSISTANT PROFESSOR
AICM,

Contents
✔ Introduction
✔ Portfolio Management Scheme Vs Direct Stock Market
investment
✔ Portfolio Management Scheme VS Mutual Funds
✔ ORIGIN OF PMS IN INDIA
✔ HOW PMS ASSETS HAVE GROWN
✔ PRODUCT TRENDS
✔ PMS TRENDS – FEE STRUCTURES
✔ How to choose a best Portfolio Management Scheme?
✔ TYPES OF PORTFOLIO MANAGEMENT
✔ Recent News
✔ BEST PORTFOLIO MANAGEMENT SCHEMES IN INDIA
✔ the list of Top 10 PMS in India
✔ ELIGIBLE INVESTORS IN PMS
✔ DOCUMENTATION REQUIRED
✔ ADVANTAGES and DISADVANTAGES of PMS
✔ OPPORTUNITY FOR PMS

Introduction
Investment in different areas like equity, real estate, mutual fund is very risk (Fachrudin and Fachrudin,
2015) .Analysis of all the sectors and making an investment in the particular sector is very tedious and
risky. To mitigate the risk involved in a particular investment, investor takes the help of
diversification .They invest their money in different investment options that are not known to each
other and minimize the risk of investment .Thus the investor builds up a portfolio of investment which
has a minimum risk and maximum returns (Johannes 2017). Through this paper, we examine the most
preferred investment option of institutional investor in India and analysed the factors which impact the
investment strategies of Institutional Investor in India. Institutional investors are the people who make
an investment on the behalf of the other people in the different assets .They have a considerable impact
on the market condition. The size of the institutional investors is growing day by day (Joseph and
Varghese ,2017).They have the professional knowledge , therefore they are considered best for the
Portfolio Management .There are many categories of institutional investor such as banks , endowments
funds ,hedge funds , insurance companies, mutual funds , pension funds ,sovereign wealth funds, unit
trusts and unit investment trusts (Nielsen 2008)
after the implementation of savings , mobilizing to address the long term saving needs of various
firms .According to Luo (2002) investment strategies are affected by home country environment
parameters , including economic growth , perceived institutional hardship , competitive pressure , and
by operational characteristics , including inward internationalization , innovation orientation and
business development stage .The negative association between risk and performance is moderated by
governance quality while large non- business institutional ownership moderates the negative
association by acting as a substitute monitoring mechanism when governance is low (Hutchinson et al.
(2015) .
Portfolio management scheme popularly known as PMS are specialized investment vehicle for lump
sum investments. The portfolio manager invests the money in shares and other securities and manages
the portfolio on behalf of the client.
One can invest fresh money in Portfolio Management Scheme and the portfolio manager will construct
a portfolio by deploying that money. Also one can transfer his existing share portfolio to the Portfolio
Management Scheme provider. In that case, the portfolio manager will revamp the portfolio in sync
with his investment philosophy and strategy.
Once the Portfolio Management Scheme account is opened, the client will be given with a web access
to his portfolio.The client can look at where the portfolio manager is investing client’s money. Also one

will be able to generate reports like Investment Summary, Portfolio Transaction List, Performance
Analysis, Portfolio Statement and Quarterlycapital gain report. As a result, Portfolio Management
Scheme relieves investors from all the administrative hassles of investments.
Portfolio Management Scheme Vs Direct Stock Market investment
One can directly invest in stock market. Then what is the advantage of investing in the stock market
through a Portfolio Management Scheme. Investing in share market demands knowledge, right
mindset, time, and continuous monitoring. It is difficult for an individual investor to meet all these
demands. But a Portfolio Management Scheme meets these demands easily. The Portfolio Management
Scheme will be managed by an experienced professional. It saves the time and effort of the individual
investors. Hence it is advisable to outsource the stock market investment to a sound Portfolio
Management Scheme operator instead of managing it on our own.
Portfolio Management Scheme VS Mutual Funds
It should also form part of your total equity investment. But mutual funds are mass products. So they
will be conservative by nature. As per SEBI regulation, mutual funds have some investment
restrictions. There is a maximum limit on the percentage of amount invested in an individual stock.
Also there is some maximum cap on the exposure in a particular sector.
Once the fund manager reaches the maximum limit prescribed by SEBI, he is forced to invest in some
other stock or some other sector. That is why we see a large number of stocks in a mutual fund
portfolio. Where as a Portfolio Management Scheme will invest in 15 to 20 stocks. This concentration
makes it more attractive and aggressive. Managing a 25 lakhs Portfolio Management Scheme portfolio
will be more flexible when compared to managing a 2000 crores mutual fund portfolio.
Portfolio Management Schemes relatively have more flexibility to move in and out of cash as and when
required depending on the stock market outlook.Basically the conservative portion of your equity
investment can go into mutual funds. The aggressive portion can go into Portfolio Management
Scheme.
ORIGIN OF PMS IN INDIA
• On 7th January 1993, SEBI issued Securities and Exchange Board of India
(Portfolio Managers) Regulations, 1993 which marked the beginning of

PMS as a formal investment vehicle in India
• Before this PMS operated as unregulated activity
• The issuance of the guidelines within a year of the establishment of SEBI
highlights the importance of this service in the capital markets
• Parag Parikh Financial Advisory Services Ltd. (PPFAS) launched the the
PMS named Cognito in October 1996
• In 2000, ICICI Prudential was the first institutional participant to provide
PMS services
HOW PMS ASSETS HAVE GROWN
• Total AUM of Portfolio Management Services industry, excluding the AUM under advisory services,
has increased by 14.5 percent from Rs 3,89,061 crore in March 2012 to Rs 4,45,428 crore in April
2012. Within Asset Under Management of Portfolio Management Services, AUM under discretionary
services constitutes the highest share in the AUM with Rs 4,26,570 crore in April 2012 compared to
Rs 3,70,302 crore in March 2012.
• In terms of number of clients, discretionary services category ranks first with total of 64,688 clients,
out of 81,472 clients in PMS industry, followed by advisory services with 10,830 clients and non-
discretionary category with 5,954 clients .
PRODUCT TRENDS
• In 2007, JM Financial offered capital protection oriented PMS. In the same year providers like Kotak
launched small cap equity PMS portfolios
• Forefront Capital Management introduced India Opportunities – a quantitative PMS based on
fundamentals for HNIs and institutions. The strategy was launched in September 2009 and invests in
large cap equities using a quantitative model based on company and macroeconomic fundamentals.

• In 2011, Bonanza Portfolio Ltd launched Shariah Portfolio Management Services-as per Shariah
guidelines mandate by Shariah Board, Islamic Investment & Finance Board (IIFB). It was targeted
towards the Indian Muslims.
PMS TRENDS – FEE STRUCTURES
• Before 2008, many PMS products charged fixed fees.
• However, PMS products with performance-driven fees were popular in 2008 and early 2009 when
interest for these schemes waned after stock markets plunged in the wake of the global credit crisis.
What is Portfolio ?
Portfolio refers to a collection of Investment tools such as shares ,stocks ,mutual funds,Bonds ,cash and
so on depending on investors income,budget and convenient time frame.
Portfolio Management
➢ Portfolio Management is a art of selecting the right investment policy for the individual in terms
of minimum risk and maximum return.
➢ It refers to managing on individuals investments in the form of Bonds ,shares,cash,mutual funds
etc ,so that he earns the maximum profits within the stipulated time frame.
➢ In plain terms ,it is managing money of individual under the expert guidence of Portfolio
managers.
What is Portfolio Management Schemes ?
Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an
investment portfolio in stocks, fixed income, debt, cash, structured products and other

individual securities, managed by a professional money manager that can potentially be
tailored to meet specific investment objectives.
How to choose a best Portfolio Management Scheme?
There are so many Portfolio Management Schemes in the industry. So it is really very difficult to choose a
good Portfolio Management Scheme provider. Here are some factors to be considered before choosing a
Portfolio Management Scheme.
1) Yardstick for Performance:
One should not just go by the past performance alone. Making an analysis on various Portfolio Management
Schemes in the industry with their past performance along with the risk adjusted return and the consistency of
performance will be useful in selecting the best Portfolio Management Scheme.
2) Minimum Investment Criteria:
Investors need to avoid Portfolio Management Schemes where the minimum investment is less than 25 lacs.
Even there are Portfolio Management Scheme operators who keep minimum investment for their schemes as
low as 5 lacs. But these kinds of Portfolio Management Scheme operators will have more number of PMS
accounts. When the quantity (the number of PMS Acs) goes up the quality (the performance) may relatively
come down. Therefore it is better to choose a Portfolio Management Scheme where the minimum investment
is 25 lacs or more. So that our PMS Ac will be directly handled and managed by the top level portfolio
manager and not managed by the juniors and analysts. If you are planning to invest less than 25 lacs, then the
ideal investment product for you would be mutual funds.
3) Conﬂict of interest:
Portfolio Management Schemes have been run by some stock broking companies as well as investment
management companies. There is a conflict of interest in Portfolio Management Schemes run by share broking
companies. The main business of a share broking company is to earn commission income by facilitating the
share market transactions. Portfolio Management Scheme is an additional business for them. It is not their
core business. Hence there may not be enough focus on the Portfolio Management Scheme business. Also
they may indulge in doing undue and unnecessary churning of the clients’ portfolio to earn more commission
income. This will cause additional expenses and short term capital gain tax to the client. The core business of
investment management companies is managing the investments of their clients to earn management fees. So,
with the Portfolio Management Schemes run by investment management companies, there is no conflict of

interest or vested interest. Therefore it is always advisable to choose a Portfolio Management Scheme offered
by investment management companies.
4) Role of Professional Financial Planners:
A professional financial advisor or financial planner will study and analyse the Portfolio Management
Schemes run by various stock broking companies as well as investment management companies. If we
approach them, they will guide us in choosing the right Portfolio Management Scheme depending upon our
requirements and other factors. Also a professional financial advisor will continuously monitor the
performance of various Portfolio Management Schemes and advice the client on a regular basis on the
performance of the Portfolio Management Scheme where the client has invested vis a vis the other PMS
schemes in the industry. After a certain period, if necessary he may advice you to move from one Portfolio
Management Scheme operator to the other.
ESOPs and Portfolio Management Scheme:
ESOPs are provided by the companies to its employees based on their service. Most of the employees are of
the opinion of keeping the ESOPs as it is forever because it is their company shares. But logically it is too
riskier to invest in a company to whom you work for. Because, your employment income as well as
investment income will depend on the performance of a single company. So it is not advisable to keep your
investments in a company where you actually work. So it is at all times advisable to transfer your ESOPs to a
Portfolio Management Scheme. They will revamp it to construct a well diversified portfolio.
Portfolio Management Scheme is an aggressive investment product and really suitable for those
investors
• Who have a share portfolio and find it difficult to manage.
• Who have enough exposure in Mutual funds and looking for a different and good investment
option
• Who have sizable ESOPs.
TYPES OF PORTFOLIO MANAGEMENT
1) Active Portfolio Management. The aim of the active portfolio manager is to make better
returns than what the market dictates. …
2) Passive Portfolio Management. At the opposite end of active management comes
the passive investing strategy. …
3) Discretionary Portfolio Management. …

4) Non-Discretionary Portfolio Management.
Active Portfolio Management
The aim of the active portfolio manager is to make better returns than what the market dictates. Those
who follow this method of investing are usually contrarian in their approach. Active managers buy
stocks when they are undervalued and start selling when they climb above the norm.
Active Portfolio Management involves the quantitative analysis of companies to determine the cost
of stock in relation to its potential. To do this, the active manager shuns the efficient market hypothesis
and instead relies on ratios to support his claim.
To downsize risk, the active manager prefers to diversify investments amongst the various sectors. The
issue with active portfolio management is that it all comes down to the manager's skill. But should you
find one with the necessary know how, the value investing method will likely bring in good gains.
Passive Portfolio Management
At the opposite end of active management comes the passive investing strategy. Those who subscribe
to this theory believe in the efficient market hypothesis. The claim is that the fundamentals of a
company will always be reflected in the price of the stock. Therefore, the passive manager prefers to
dabble in index funds which have a low turnover, but good long-term worth.
With index funds, your cash is invested percentage-wise in proportion to the market capitalization.
What this means is that if a company represented 2% of the 500 Index, then Rs. 2 would be invested
into the company for every Rs.100 put into the 500 fund.
Discretionary Portfolio Management
A discretionary manager is given full leeway to make decisions for the investor. While the individual
goals and time-frame are taken into account, the manager adopts whichever strategy he thinks best.
Once the cash has been handed to the professional, the investor sits back and trusts that the profits will
roll in.
Non-Discretionary Portfolio Management
The non-discretionary manager is simply a financial counselor. He advises the investor in which routes
are best to take. While the pros and cons are clearly outlined, it is up to the investor to choose his own

path. Only once the manager has been given the go ahead, does he make a move on the investor's
behalf.
Whether you decide to use a portfolio manager or you choose to take on the role yourself, it is
important to opt for a viable strategy and ensure that it is put forward in a logical way. The merit of
maintaining a sensible portfolio is that it cuts down the confusion while providing investments that fit
the individual's goals.
Recent News
SEBI hikes PMS investment size to Rs 50 lakh, tightens default disclosure norms:
Mumbai/New Delhi: Markets regulator the Securities and Exchange Board of India (Sebi) on
Wednesday increased minimum investment limit by clients in a portfolio management service (PMS) to
Rs 50 lakh from Rs 25 lakh earlier. The regulator also tightened disclosure norms on loan defaults.
Base net worth requirement of portfolio managers has also been raised to Rs 5 crore from Rs 2 crore.
The regulator said the portfolio managers now cannot invest more than 25 per cent of their assets under
management (AUM) in unlisted securities.Market participants were of the view that the move will
restrict the growth of PMS industry.
“The increase in investment limit and net worth criteria are likely to slow down the growth seen by the
PMS industry, since the market of potential investors will reduce with the doubling of the minimum
₹investment amount to 50 lakh,” said Anish Teli, founder of IndexAlpha.
“The increase in net-worth requirements to Rs 5 crore will also limit the number of new/existing
businesses that want to obtain/retain the Sebi PMS registration. For retail investors who can’t go for
structured products or PMS, readymade portfolios that are professionally managed are a very effective
option to take exposure to high-quality strategies at reasonable cost," he added.
Existing portfolio managers have to meet the enhanced requirement within 36 months, Sebi said.
Others shared the view.“Hiking the investment limit for PMS from Rs 25 lakh to Rs 50 lakh is a bit
restrictive. Many potential investors are likely to be denied the benefits of PMS," said V K Vijaykumar,
Chief Investment Strategist at Geojit Financial Services.

Since May 2014, when discretionary PMS products, excluding provident fund money, managed
roughly Rs 48,000 crore, their assets have grown almost three times to Rs 1.41 lakh crore at the end of
June. Though dwarfed by the mutual fund industry’s assets of more than Rs 26 lakh crore, several
portfolio managers have mushroomed across the country, raising concerns that many of them might not
be following best practices and products are being mis-sold.PMS products are not as tightly regulated
as mutual funds, allowing their asset managers to follow more liberal fund management and selling
practices. With Sebi barring mutual funds from offering upfront commissions to distributors and wealth
managers on the sale of their products, many brokers are increasingly selling PMS products.Sebi also
tightened the disclosure norms on loan defaults.
in order to address the gaps in availability of information with respect to defaults, Sebi decided that in
case of any default in repayment of principal or interest on loans from banks and financial institutions
which continues beyond 30 days from pre-agreed payment date, listed entities will disclose such
default, within 24 hours from the 30th day of such default.These provisions will be applicable from
January 1.
“The philosophy is that more and more information should be in public domain, which guide investors
and stakeholders as to what is happening,” Sebi Chairman Ajay Tyagi told reporters after the board
meeting.“It is an attempt to go for better disclosures in the public domain,” Tyagi also.The Sebi board
in a meeting in Mumbai also approved the reduction in timeline for completion of rights issue to T+31
days from T+55 days.Sebi also introduced dematerialised rights entitlements (REs) and trading of REs
on stock exchanges.Sebi rules require that top 500 listed entities based on market capitalisation shall
include Business Responsibility Reporting as part of annual reports. Such applicability is now extended
to top 1,000 listed entitiesOn the recent NSE glitches, Tyagi express his concerns.
“We will call them. This should not happen,” said Tyagi.Sebi said it will examine if the period of
NSE’s ban on raising funds from capital markets is over.“We are examining whether the six month
period (of ban from raising money from capital markets) is over or not, because they had challenged
some parts of the order,” Tyagi said.On whistleblower complaints, Tyagi said the companies should
follow their standard operating procedure.“If it is material , the company has to disclose it. If they
don’t, we will take action,” said Tyagi adding that one cannot really define what is material.
How do portfolio management schemes work?
A portfolio management scheme (PMS) is like a mutual fund but for slightly larger investments.
According to SEBI regulations, the minimum investment in a PMS should be Rs5 lakhs, although most
schemes in India keep Rs25 lakhs to Rs1cr as the minimum cut-off. There is no upper limit on PMS
investments. A PMS can only be operated by an authorized portfolio manager registered with SEBI.

Such registered PMS services have to meet certain minimum standards of capital adequacy, mandatory
disclosures, regular filings with SEBI, skill set requirements, and other standard operating procedures.
How exactly do PMS services operate in India?
Understanding PMS categories in India
Broadly, there are two categories of PMS in India: discretionary PMS and non-discretionary PMS. In
discretionary PMS, the investments in equities and bonds are done at the discretion of the fund
manager. The client does not get involved in the day-to-day decision making, but the client does have
continuous access to the performance of the scheme at any point of time. On the other hand, there is the
non-discretionary side of the PMS where the portfolio manager only suggests investment ideas.
Whether to invest or not and when to invest rests with the investor. However, an absolutely non-
discretionary approach becomes very difficult to operate and measure. Hence, in actual practice, what
the customer does is to give a negative list of stocks to avoid and the fund manager goes ahead crafting
the portfolio.
How do I participate in a PMS scheme?
Should I bring in cash or should I bring in my contribution in the form of shares? In fact, you can
participate either by putting the money in as cash or as shares. To begin with, you can pay the minimum
investment in a PMS either by cheque, demand draft, or via RTGS transfers. All the three forms of
payment are acceptable although most PMS schemes will insist on payment by cheque or RTGS to
ensure that the account map remains with the PMS for all future transactions. The investor can also opt
for the PMS by transferring his/her shares into the PMS account. Generally, the PMS will do a review
and sell shares so that the portfolio is in sync with the benchmark PMS portfolio.
Under SEBI regulations, the investor will have to execute a PMS agreement with the service provider
and also execute a power of attorney (POA) agreement for ease of operations. There is routine KYC
documentation that is required, and a separate PMS demat account has to be opened. This is distinct
from your existing individual demat account. Apart from resident Indians, NRIs can also invest in PMS
after opening a PIS account with an authorized bank.
How exactly do PMS schemes operate?
This is an area where PMS differs from mutual funds. A mutual fund scheme will have one common
portfolio and investors get proportionate units out of that portfolio. In case of PMS, the portfolio is
unique to each individual, although it broadly based on the model portfolio. Normally, discretionary
PMS schemes will ensure regular contact with the client, give them regular reports and analytics on

performance, and also provide an online web-based access to the portfolio and various analytical
metrics. For large portfolios above Rs1cr, the PMS will arrange for quarterly face-to-face meetings
with the client and it can also be monthly in case of larger portfolios.
Costs and Taxation for PMS
All the charges are specifically mentioned in the PMS agreement, and hence, it is advisable to read the
fine print and get the agreement vetted by a lawyer. Normally, PMS schemes will charge the client an
entry load ranging from 3-4% based on the size of the corpus. In addition, fund manager fees are
charged, which vary from 2-3% per annum and is debited to your PMS account on a quarterly basis.
Most PMS schemes also charge something known as “alpha compensation.” This is an additional profit
sharing arrangement with the client if the returns cross a certain threshold. If threshold is 14% with
20% added sharing, then a return of 22% will mean that you pay an additional profit sharing of 1.60%
(20% of 8%). This is over and above the management fee. In terms of taxation, PMS income has to be
treated as business income or as capital gains because transactions are done through the client’s demat
account. Chartered Accountants suggest using the business income reporting mode.
The PMS will also bill custodial charges, demat charges, audit fees, and brokerage charges on actuals.
This adds up to quite a bit, hence, it must be ensured that your chosen PMS has a good track record and
that you earn decent returns even after covering these costs.
BEST PORTFOLIO MANAGEMENT SCHEMES IN INDIA
➔ SECURITIES INVESTMENT MGMT PVT LTD ( SIMPL)
The fund has a simplistic website with only the bare essentials on it – the PMS Disclousure doc and
their presentation.The founder of SIMPL is Rajshekhar Iyer, ex-head of Equity research at KOTAK. He
pioneered a value investing newsletter in India in the 90s, and is highly influenced by Graham and
Dadd Mr. Iyer managed money for friends & family for about two decades before formally
establishing itself as a PMS (which was in late 2009). It is currently run by Ravi Purohit. I came to
know about the fund because I follow Sanjay Bakshi, one of the leading lights of value investing in
India, and a few years ago Prof. Bakshi invited Ravi to share the stage with him presenting a case study
of an incredible footwear company to his MBA students. Interestingly, Prof. Bakshi also wrote articles
for Mr. Iyer’s newsletter back in the day. Ravi has ~90% of his networth invested in the fund, and of
the 268+ crores (figure likely to now be dated) being managed by SIMPL, about 30% is from the Iyer
family;

the disclosure doc would have the exact figures).The point is – alignment of interests, a common theme
you will find across these PMS offerings. This is a very skilled, conservative (Seth Klarman-inspired)
PMS option.
VALLUM CAPITAL
This is the best-performing PMS in India in the ~4.5Y window from Oct’11 through Mar’16. It is the
“youngest” PMS of the four I’ve shortlisted, but likely the easiest to get comfortable with because
Manish makes his thought-process open to the public on his blog Valuenomics. He frequently shares
what his reading and has even posted his fund’s annual letters,online. If you are considering them, it
may be worthwhile reading through them all.There’s an interview of manish bhandari on Youtube
transcript.
I’ve read all the posts on his fund’s blog, and they make for very interesting reads. His piece on real
estate “the end game of speculation in indian real estate have gun (August 2013) is one of the most
solidly researched & elegantly laid-out arguments on this subject I’ve read.
Vallum is primarily a mid-cap focused PMS, with some small-cap investments as well. They tend to
have half their portfolio in contrarian/business turn-around opportunities and the other half in “growth-
at-a-reasonable-price”. They’ve made quite a few excellent calls over the last ~5 years which have
contributed to the superior performance of their fund.Their investment approach (as I see it) is closest
to the one espoused by the fund managers of Marathan Asset Management [UK].
Manish has the highly esteemed Sankaran Naren as a mentor and guide [always important to know /
note who people look upto or have learned from] A substantial effort is made to find opportunities
where one does not pay too much for growth (emphasis on contrarian opportunities & supply side
mechanics). For more on this, consider reading the excellent book capital returns`
EQUITY INTELLIGENCE
Porinju Veliyath runs Equity Intelligence , based out of Kochi. He’s posted about ~32% a year since
2003 (~15 years at the time of this writing).This is an extraordinary rate of return vs any kind of
benchmark – sensex/nifty/inflation and, more – it is over a very long period, crucially, covering the
2008-9 crisis during which any fund manager could have been down between 30-60%.

He doesn’t care for moats or great management quality. He is often looking for turn-arounds, deep
bargains or futuristic businesses (example :FCEL ). He often “talks his book” on Twitter and TV.
One thing to note is accessibility (to the fund manager) is very low.
I don’t know about MOSWL, but with the other PMS managers listed here, you can typically schedule
a call with the manager and ask to understand a particular position’s thesis in detail. The same does not
hold here. On the client relations front this fund is quite poor.In 2018, the fund has gotten hammered as
1) they tend to hold no cash position,
2) invested 100% of received funds at every point in the late 2017-early 2018 cycle &
3) had a concentrated portfolio (10-12 positions) with the wrong strategy of business selection.
To his credit, the fund manager has publicly acknowledged that his firm has had a bad year. One may
reasonably expect though, that someone who has had a strong record over a long period of time will at
some point resume the strong record. How long the recovery takes is anybody’s guess.
You can write to EQ and get their latest presentation or read about the fund and their disclosure doc.
[Update : mid-Sep’17 : min was 25L for most of 2016, was upped to 50L sometime in 2017].
MOTIAL OSWAL – VALUE PMS
I’ve written about this company here. One thing I can vouch for is the company scores very high on
integrity; the founders have a very long-term focus, and truly get value investing. Of course the CEO is
not the fund manager of the PMS, but because it is a “flagship” product for HNW clients, I would
imagine it would have considerable periodic oversight in terms of strategy and direction.Manish
Sonthalia (the fund manager) isn’t on Twitter, but he’s written a lot in the past & he’s been interviewed
on TV many times (see YouTube for this). Just as with Porinju’s PMS, this PMS has been around for a
while and one must appreciate its excellent ~25% annual returns in the context of a 15 year period
(>28x, net of fees) Here’s an interview of sonathalia with Mr. Damani [Oct’16]
Their site has a lot of material if you wish to consider investing with them.
SAGEONE
As part of my learning process, I followed Samit on Twitter , and read all the quarterly/annual
newsletters from their site ,samit. Was also interviewed by Vishal of safal niveshak who conducts
probably the best interviews of investors that I’ve come across. My impression is Samit is very humble,
level-headed & thoughtful. I attended the 2017 Asia -focused value Investing 2017 concference put
together by Shai Dardashti & John Milhaljavic [who run [the Manual of Ideas ] Over an hour and half,

Samit presented an investment idea & Shai asked a whole lot of first-rate questions. My takeaway is
that the depth of their ‘homework’ is excellent. Later that year, Samit presented the idea (Balkrishna
Industries) in India at IIC 2017 . Video link here . Samit also presented at IIC 2018.
If one really wants to know about their investing process, there’s plenty of good material online.
I actually had their India Growth fund on my radar since 2015. This has a $100K min, and has achieved
~34% annualized in USD terms from Apr’09 – Feb’17. Back then, there was no way for resident
Indians to invest in it. It was domiciled out of Singapore, and only HNIs who were not residents of
India could invest.
SageOne launched its domestic PMS Offering only in Jan ’17 & as of May ’17 upped their min
investment from 50L to 2C. By Oct’17 they stopped taking new monies as they were not finding
opportunities interesting enough to deploy fresh capital. They opened up their window again in
May’18. They tend to lean towards higher quality names with strong cashflow visibility. Some of these
have been wealth-creators in the past 5-7 years. If you write to SageOne & ask, they’ll share with you
their PMS deck which mentions some of them. They do have a fixed-fee option, which I like. If you
expect a significant outperformance, you’re better off avoiding a performance-based fee structure &
choosing a flat fee structure. Currently, only SageOne & MOSWL offer this option.
Here is the list of Top 10 PMS in India –
Rank Best PMS House
1 Motilal Oswal PMS
2 Ask PMS
3 Kotak PMS
4 ICICI Prudential PMS
5 Birla Sunlife PMS
6 Alchemy PMS
7 Invesco PMS
8 Unifi Capital PMS

9 NJ Advisory PMS
10 Forefront PMS
IS SEBI REGISTRATION MANDATORY?
• According to SEBI guidelines PMS can be offered only by entities having specific SEBI registration.
• However, there are unregistered PMS providers who provide these services to their clients.
• While SEBI-registered PMS managers need to be body corporates, having a minimum net worth of
Rs. 2 crore and collect a minimum amount of Rs. 25 lakh from a single client to be managed, entities
running such services without the regulator's recognition may be doing so without meeting any of these
parameters.
• Further, before giving a PMS license, the market regulator insists on previous experience of the
applicant in related activities and managing funds.
• Some unregistered firms are practising PMS because their parent firm or subsidiary firm has a
certificate. However, even these could come under SEBI’s scanner.
• SEBI, on earlier occasions has warned of wide ranging consequences for such unregistered PMS
providers
• Hence it is in the interest of investors to choose only SEBI registered PMS providers
TYPICAL PROFILE OF PMS CLIENT
• The Investment solutions provided by PMS cater to a niche segment of clients.
• The clients can be Institutions or Individuals with high net worth. A high net worth individual (HNI)
with a minimum net worth of Rs. 2 crore is a suitable profile
• Someone looking for a focused portfolio management and personalized investment solutions and high
level of service

• The offerings are usually ideal for investors: who are looking to invest in asset classes like equity,
fixed income, structured products etc
ELIGIBLE INVESTORS IN PMS
• The following are eligible investors:
– Resident Individuals (>18 years)
– Hindu Undivided Families (HUF)
– Body corporate (Private /Public)
– Trust (registered) – Sole Proprietorship Firm
– Co-Operative Society
– NRIs
– subject to RBI approvals
– Partnership firms and other eligible investors
SOME OTHER CLASSIFICATIONS
Based on Provider:
1. AMCs
2. Brokerage Houses
3. Independent experts
Based on Product Class:
1. Equity
2. Fixed Income
3. Multi Asset
Based on Cut-Off (Minimum ticket size):

1. Rs. 25 lakhs
2. Rs. 50 lakhs
3. Rs. 1 crore
Client Type:
1. Individual
2. Institutions
DOCUMENTATION REQUIRED
• The following documents are required:
– PMS Client Registration Form
– Discretionary Portfolio Management Service Agreement
– Power of Attorney by client to PMS. This document needs to be notarized locally.
– Bank Account Opening Form
– Photographs
– Depository Account Opening Form
– Proof of Identity
– Proof of Address
– PAN Card
ADVANTAGES OF PMS
• PMS offers the advantage of customization and concentrated portfolios. This works well in uncertain
and volatile markets, where opportunities may be more concentrated. In other words, if you want to
invest in or avoid specific stocks or sectors you can’t do that with an equity MF.
• There is scope of one-on-one interaction with the portfolio manager which increases level of
engagement
• The client has a greater control over his/her portfolio

• Personalized and professional services
• Transparency with respect to the portfolio is very high. Usually clients are given online access to view
their portfolios any time
DISADVANTAGES OF PMS
• Most PMS don’t have a system of NAV like mutual funds. Every PMS scheme has a model portfolio
and all the investments for a particular investor are done in the Portfolio Management Services on the
basis of model portfolio of the scheme. However the portfolio may differ from investor to investor.
• Also limited information is available in public domain. So the comparison of performance becomes
challenging making it difficult to choose the right PMS provider.
• A disadvantage PMS has over a mutual fund is that investment in PMS does not carry tax benefits
unlike MFs
• The threshold size of PMS is Rs 25 lakhs upwards which makes the service inaccessible to middle
class households
PMS INFORMATION IN PUBLIC
• Portfolio Managers shall also ensure that the disclosure document is given to all clients along with the
account opening form at least two days in advance of signing of the agreement.
• In order to ensure that the clients have access to updated information about the portfolio manager,
portfolio managers shall place the latest disclosure document on their website, wherever possible.
• The Disclosure Document contains the following:
– Disclaimer & Definitions
– History, Present Business and Background of the Portfolio Manager
– Penalties, Pending Litigations or Proceedings
– Services Offered
– Declaration regarding broking services
– Risk Factors
– Financial Performance of the Portfolio Manager
– Nature of Costs and Expenses for Clients

– Agreement
– Tax Implications
– Accounting Policies and Valuations– Investor Services
Are PMS Alternative Investment Funds?
• In 2012 SEBI notified the Alternative Investment Funds(AIF) regulations
• PMS is governed by the Portfolio Managers Regulations, 1993 and any investment vehicle which is
currently under the guidelines of SEBI to regulate fund management activities is not covered under
the AIF Regulations
AIFs AND PMS
• AIFs are private investment funds that pool assets from a group of investors and have a defined target
for that pool
• There are three distinct categories under AIF.
– Category I includes those AIFs with positive spillover effects on the economy, for which incentives
or concessions might be considered by SEBI or Government of India or other regulators in India; and
which shall include Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds.
This implies certain specific sector investments and focuses on the unlisted category of enterprises,
where there is need for private funding.
– Category II focuses on unlisted enterprises but doesn’t limit the fund to a defined sector. This is akin
to many sector-agnostic PE funds that are likely to fall in this category.
– Category III caters to any other kind of fund—hence, a fund that invests primarily in listed equity
will qualify for this category. The last category also includes hedge funds that take leverage as part of
their strategy and use a mix of assets and derivatives to achieve returns.
• Category I and II AIFs shall be close-ended and shall have a minimum tenure of 3 years while
Category III AIFs may either be close or openended.

• Difference between AIF and PMS:
– AIFs pool money to invest in unlisted equity unlike PMS managers who make investments into listed
equity.
– The minimum investment in PMs is Rs. 25 lakhs while that for AIFs is Rs. 1 crore.
– PMS products cannot be close-ended while Category I and II AIFs are close-ended
OPPORTUNITY FOR PMS
• Income levels in India on a rise making Rs. 25 lakhs not beyond the reach of many.
– HNI liquid assets as a percentage of GDP rose from 8% to 12% between 2005 to 2010 and is likely to
increase
– Indian HNIs account for 1.7% of the total MF folios but 24% of the MF industry AUM
• Scope for product innovation - existing offerings largely plain vanilla
• Many Fund Managers with established track records are now offering PMS products
• SEBI guidelines have improved investor safety and confidence
QFIS AS POTENTIAL CLIENTS FOR PMS
• The government has announced in 2012 that QFIs will be allowed to directly invest in Indian equity
markets. The RBI would grant general permission to QFIs for investment under the Portfolio
Investment Scheme (PIS) route
• A QFI is an individual, group or association resident in a foreign country that is compliant with
Financial Action Task Force (FATF) standards. QFIs do not include FIIs/sub accounts.
• As a result, a large number of QFIs, especially a large set of diversified individual foreign nationals
who are desirous of investing are likely to start investing

• They will like to have access to local managers who have a strong understanding of the domestic
capital markets
• This is likely to positively impact the AUMs of PMS provid
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