Are you aware of different fees on a Portfolio Management Services (PMS)?

With more than 50 lakhs Demat accounts and only around 20 lakhs active trading accounts registered with brokers, there are a lot of investors whose investments in stock markets are limited to the IPO Luck.

Although investing in an IPO is a sound investment strategy, it often is not enough to fulfill your financial needs. Most investors agree that trading in the secondary market as per your investment objective/philosophy is more likely to work towards meeting your financial objective through stock markets. 

However, time and the learning curve for entering a secondary market may sound too troublesome or daunting to several investors. If you are also aware of the benefits of entering into the share market through secondary purchases but are not sure how to get into it, Portfolio Management Service (PMS) is one of the best products for you to meet your objectives. 

In this blog, we will talk briefly about what PMS is and the different kinds of fees that portfolio managers take in lieu of managing your portfolio. 

What is PMS?

Portfolio Management Service (PMS) is a professional investment management service that seeks to manage your money, assets, savings, or any form of investments such that you meet your tailored investment objectives.

A portfolio manager mainly provides three major services to the clients:

1. Research and analytics
2. Administration
3. Decision

When all three services are given to the clients, such portfolio management services are Discretionary Portfolio Management services. When the portfolio managers do not make decisions but the clients themselves based on the research provided by the portfolio manager, such service is called Non-Discretionary Portfolio Management Service.

Regardless of the types, in both cases, portfolio management service providers will most of the time provide administrative services needed to execute the decisions on the portfolio.

Types of Fees in a PMS Service

Depending on the kind of services, a portfolio manager will charge you two kinds of fees.

  1. Annual Maintenance Fees
  2. Performance Fees

What is an Annual Maintenance Fee?

Annual Maintenance Fees as the name suggests is an annual payment which is paid for the research and administration services that the portfolio manager providers. A portfolio manager will employ several experts to continuously study and research the latest market trends of different companies. 

Similarly, the portfolio manager will also employ administrative staff to liaise with the broker to carry out the sell / buy decisions. In exchange for these services, the portfolio manager will charge you an annual maintenance fee. This fee is generally linked to a percentage of your portfolio value. 

Annual Maintenance fee is usually applicable in both kinds of portfolio management service products.

For eg. if the Annual Maintenance Fee is 2% and if your portfolio is 100 Rs, then the Annual Maintenance Fees will be 2 Rs. When your portfolio is significantly bigger, the annual maintenance fees taken could be high as well.

Considering this, Nabil Investment has developed an Infinity Portfolio Management Service, where regardless of the portfolio amount (infinite), the Annual Maintenance Fees will be fixed. 

To know more about the infinity Portfolio Management service, please contact us today.

What is a Performance Fee?

Performance Fees are generally applicable in Discretionary Portfolio Management (PMS) service products. Performance Fees are a percentage based fees tied to – as the name suggests – performance of your portfolio. 

Because, the more the portfolio performs, higher the revenue of the portfolio manager, it is often a win-win agreement for both you and your portfolio manager. Most companies also put a hurdle rate for the performance fees to be earned. To learn more about hurdle rate, read our blog on the same. 

If the portfolio does not perform better than the agreed rate, you will not have to pay the performance fee to the portfolio manager. However, if the portfolio brings more return than the hurdle rate, the Portfolio manager will charge you a performance fee. 

Apart from these two usual fees, some portfolio managers also charge a one time joining fee which could be flat or tied to the percentage of the portfolio amount.