Advantages of PMS
1.Personalised asset allocation. The portfolio should be based on your personal investment goals. It would not be just a general strategy like “growth” or “income.” Thus the money that you need in 6 days would be in a savings bank account, money that you require in 6 months in a floater account, and money that you require in 6 years in an (say) Index fund or allocated to equity as chosen by the portfolio manager. If you did go to a proper portfolio manager he would do 2 things for you. One is create a portfolio that suits your personality. For a senior government servant with an indexed pension he could take more risk in the portfolio, and for a financial product sales man he would take less risk.
2. Transparency. You should be able to see your portfolio on a 24/7 basis – all your investments should be posted to a website where you can do an analysis as you wish. The website should give your capital gains – booked and un-booked profits, current value of your investments, etc. Obviously you will have the whole thing password protected and therefore secure.
In case of mutual funds, you know what’s in your account only when you get the month end portfolio – but you have no clear idea when it was bought and at what price. Here you can see what you own.
3. Tax efficient. Your portfolio can be run so that taxes are optimized. If you went to him at your age of 55, he might decide to book profits once you have retired or after you start getting the senior citizen benefits.
4. Costs: PMS managers charge a flat annual fee plus profits. Most of their money is made on the profits unlike a flat fee like a mutual fund. However you will still incur costs like custodian charges, administration fee, brokerage (therefore churn costs), etc. If your portfolio is being managed by an equity broker it is very difficult for you to know the intention of each and every transaction. Hence it is necessary for you to keep a keen watch.
5. Performance. PMS accounts often offer the services of decent money managers with good investment systems and favorable track records. However unless you have put your own money in various schemes you cannot compare the various managers. There is no public data of all the portfolio managers unlike in the case of mutual fund managers.
6. Convenience. If you are too busy to give your investments the attention they deserve – or if you are an inexperienced or emotional investor – having a professional run your portfolio may be a good solution.
Having said all nice things in a few days time I will also tell you the disadvantages of a PMS.
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