Understanding the PMS Process: Fund Pooling and Fund Accounting

by Alina Khan

Published On Dec. 18, 2023

In this article

In the dynamic landscape of wealth management, investors are increasingly turning to Portfolio Management Services (PMS) to enhance their investment portfolios. PMS is a sophisticated investment vehicle that combines the expertise of professional fund managers with the individual investment goals of high-net-worth individuals (HNIs). In this article, we will delve into the intricacies of the PMS process, shedding light on two critical components – Fund Pooling and Fund Accounting.

Fund Pooling

Fund pooling is a fundamental aspect of the PMS process, representing the mechanism through which capital from multiple investors is aggregated into a common investment pool. This pooling of funds serves two primary purposes: diversification and professional management.

  1. Diversification for Risk Mitigation:

PMS offers investors access to a diversified portfolio of securities, which may include equities, fixed income instruments, and other financial instruments. Diversification helps spread risk across different asset classes, industries, and sectors, reducing the impact of market volatility on the overall portfolio.

Example: Consider a PMS with investments across sectors such as technology, healthcare, and finance. If one sector faces a downturn, the positive performance of other sectors can offset potential losses.

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  1. Professional Management for Optimal Returns:

Skilled fund managers employed by PMS providers are responsible for making investment decisions on behalf of the investors. Their expertise in market analysis, research, and asset allocation aims to achieve optimal returns in line with the investor's risk tolerance and financial goals.

According to a recent study, PMS-managed portfolios have outperformed broader market indices in India by an average of 2-3% annually over the past decade.

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Fund Accounting:

Fund accounting is the meticulous process of recording, summarizing, and reporting financial transactions within the PMS. This ensures transparency, compliance, and accurate tracking of the portfolio's performance.

  1. Transparent Reporting for Investors:

PMS providers maintain a comprehensive record of all transactions, including purchases, sales, and income generated from investments. Regular and transparent reporting allows investors to monitor the performance of their portfolios, understand the rationale behind investment decisions, and assess the impact on their overall wealth.

Example: Monthly statements provided by PMS providers detail the portfolio's performance, asset allocation, and individual security holdings, empowering investors with the information needed to make informed decisions.

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  1. Compliance with Regulatory Standards:

Fund accounting within PMS is subject to stringent regulatory oversight. PMS providers must adhere to guidelines set by regulatory bodies such as the Securities and Exchange Board of India (SEBI). Compliance ensures that investor interests are protected, and the PMS operates within the bounds of legal and ethical standards.

SEBI mandates regular audits and disclosures by PMS providers to maintain transparency and uphold investor confidence.

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Wrapping Up

Portfolio Management Services (PMS) , with its focus on fund pooling and fund accounting, offers a sophisticated avenue for wealth creation in the financial landscape. By harnessing the benefits of diversification and professional management, PMS empowers investors to navigate the complexities of the market while fund accounting ensures transparency and compliance. As the demand for personalized wealth management solutions continues to rise, understanding the intricacies of the PMS process becomes crucial for investors seeking to optimize their financial portfolios in India's evolving economic scenario.

Want to learn more about PMS? Here are some interesting articles related to Portfolio Management Services in India:

  1. What is Portfolio Management Service - Types and Benefits

  2. What is the Minimum Investment Ticket Size for Portfolio Management Services (PMS)?

  3. Complete Guide to Factor Investing & the Wright Factor Fund PMS

  4. Fee Structure for the Wright Portfolio Management Service

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