Portfolio Management Services (PMS) in India have gained prominence as a tailored investment solution primarily catering to High Net Worth Individuals (HNIs) and institutions. Portfolio Management Services offers a diversified portfolio managed by professional portfolio managers to align with your financial goals. If you're considering opening a PMS account, this comprehensive guide will walk you through the process step by step.

1. Understand the Basics:

Before diving into the process of opening a PMS account, it's essential to grasp the fundamentals. PMS, or Portfolio Management Services, involve investing in a diversified portfolio managed by a professional portfolio manager. This portfolio can include a mix of stocks, fixed income securities, debt instruments, cash, and structured products, all tailored to meet your unique financial objectives.

In India, PMS services are provided by various entities, including equity broking firms and wealth management services. As an example, IIFL PMS is among the prominent PMS providers in the country.

2. Regulatory Registration:

To offer PMS services to individuals, entities must register with the Securities and Exchange Board of India (SEBI) . Unlike some financial sectors, there are no specific certifications or qualifications required for selling PMS products in India.

3. Separate Bank and Demat Account:

Once you decide to open a PMS account, the first step involves creating a separate bank account and a Demat (Dematerialized) account under your ownership. Here's a breakdown of these accounts:

• Demat Account: A Demat account is a digital account that holds all the securities you own and trade. Every investment made through PMS is in your legal name, including shares held and traded within your Demat account.

• Bank Account: The bank account is where any gains or dividend payouts from your PMS investments will be credited. You will need to grant a power of attorney to your portfolio manager for both the bank and Demat accounts. This allows your portfolio manager to operate these accounts on your behalf. However, it's crucial to note that you retain absolute access to these accounts, allowing you to verify the status of your investment portfolio.

4. Distinguishing PMS from Mutual Funds:

PMS is sometimes confused with Mutual Funds (MFs), but they operate differently:

• In Mutual Funds, fund managers have discretion over investments, provided they meet clients' return expectations.

• In contrast, portfolio managers in PMS offer suggestions and are responsible for the entirety of the investments. This means you have more control over the composition of your portfolio when compared to Mutual Funds.

Furthermore, PMS is often tailored for a smaller number of investors, offering customization options for larger investors. SEBI mandates that your chosen portfolio manager must provide you with a detailed performance report every six months.

Read this article to learn more Difference Between Discretionary PMS, Non-Discretionary PMS, and Advisory PMS in India

5. Minimum Investment Requirement:

SEBI has been regulating the PMS industry in India for an extended period. Given the inherent unpredictability of PMS investments, SEBI has implemented a minimum investment requirement to protect smaller investors. As per SEBI regulations, a PMS account can be opened and held with a minimum corpus of ₹50 lakhs. It's worth noting that this minimum investment threshold was raised from ₹25 lakhs to ₹50 lakhs in 2019. Different financial service providers may have varying balance requirements for their PMS offerings.

Read this article to learn more about What is the Minimum Investment Ticket Size for Portfolio Management Services (PMS)?

6. Required Documents for Opening a PMS Account:

To open a PMS account as an individual investor in India, you will need to provide the following documents:

• PAN Card: Your Permanent Account Number (PAN) card is a mandatory document for tax purposes.

• Photographs: Passport-sized photographs are typically required for identity verification.

• Address Proof: Aadhar card serves as a valid address proof.

• PAN and Aadhapms

• r Card Copy of Guardian: If the nominee is a minor, you will need to provide PAN and Aadhar card copies for the guardian.

• Second Holder: If there is a second holder on the account, you will need to provide their PAN and Aadhar card copies.

• Bank Proof: You must submit bank proof, which can be any one of the following:

• Pre-printed canceled cheque in the name of the account holder.

• Bank statement/passbook.

• In case a canceled cheque is given in the name of a proprietary firm, a bank letter along with a bank stamp is mandatory.

• FATCA Declaration: This form is required to comply with Foreign Account Tax Compliance Act (FATCA) regulations.

• Copy of the Power of Attorney (POA) provided to the PMS: This document authorizes the portfolio manager to operate your bank and Demat accounts on your behalf.

• Demat Account Opening Form: This form is essential to establish your Demat account.

• Term Sheet: A term sheet outlines the key terms and conditions of your PMS account.

To Sum Up:

Opening a Portfolio Management Services account in India is a well-defined process aimed at providing investors with a professional and tailored investment solution. While PMS offers a higher degree of control over your portfolio compared to Mutual Funds, it's crucial to remember that all forms of investment carry inherent risks. Before opening a PMS account, make sure to thoroughly understand the associated risks and carefully review the terms and conditions. Seeking advice from financial experts and conducting due diligence can help you make informed decisions and navigate the world of PMS investments effectively.

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