Strategies For Choosing The Right Portfolio Management Service

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Introduction

Making investments is the golden mantra for turning rich nowadays. People look for opportunities to invest with an aim to generate 2x, 5x, or even 10x returns. Most of us invest and take the backseat, waiting for returns as not everyone has the time to pamper these investments. But the fact is that investing alone does not generate wealth, managing the portfolio is also equally important. And that's where portfolio management services (PMS) come to the rescue!

 

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Generally, there are many portfolio managers ready to cater professional services. Deciding on the one that suitably fits your needs is what this article will guide you through! Learn about different types of PMS in India, strategies for selecting a top-notch portfolio management service, how to rebalance your portfolio, and much more.

Types of Portfolio Management Services in India

Portfolio management services (or PMS) refer to the professional services individuals or institutions offer for managing and handling your portfolio. Here, an exclusive portfolio manager listens to your financial needs and curates a portfolio with risk tolerance levels and investment preferences. However, choosing portfolio management services is crucial, given their availability in different forms. 

Let us look at the pointers below to see the common portfolio management service types trending in the market. 

Discretionary Portfolio Management Service

Technically, discretionary refers to the right given to someone to make decisions. When you allow portfolio managers to decide on your behalf, it is known as discretionary portfolio management service. These managers have full authority to invest on the investor’s behalf. Likewise, investors cannot interfere with their expertise in portfolio composition, reinvesting, or rebalancing. However, you must supervise, take care of, and ensure that the portfolio managers do not misuse this power as they are responsible for the portfolio's performance and overall risk. 

Non-discretionary Portfolio Management Service

Contradictory to the above type, the non-discretionary portfolio management service involves no major involvement of the portfolio manager. These managers only act as advisors here to provide investment recommendations and suggestions. In the end, it is your call on the final investment you wish to make. It also means you (as an investor) cannot blame the portfolio manager for the lower performance of the portfolio. 

Active portfolio management

Active portfolio management service includes frequent changes to the portfolio. Here, the portfolio manager constantly monitors the market, compares the performance of securities held, and makes changes likewise. In short, they take advantage of the ongoing market conditions in a way that the portfolio benefits and achieves positive returns. But, you need to know that active PMS also involves higher risk and cost. Hence, trusting professional portfolio management services is the safest. 

Passive portfolio management

Lastly, for all those passive investors believing in long-term returns, passive portfolio management is made just for you. Here, portfolio managers do not haste in making changes to the portfolio. Instead, they follow a predefined strategy to balance the risk and the desired return rate.

Strategies for Selecting an Excellent Portfolio Management Service

Now, choosing the best portfolio management services among all can be a bit tough. However, with some strategies, you can pick an excellent portfolio management service. Here are some of them discussed below:

Assessment of goals and risk tolerance level

Before approaching any portfolio management service, you must be internally aware of what you wish to achieve with these services. Is it a dream vacation, buying a house, or retirement relief? Decide on the core investment goals and how much risk you can tolerate during this period. Once the decision is made, you can go for the popular portfolio management service options. 

Investment philosophy and approach

Multiple institutions provide portfolio management services. But what matters is the approach or strategy followed to align the portfolio management strategies with the investor’s needs and goals. Besides, selecting investment risk management practices is another metric to look for when selecting a portfolio management service for your portfolio. 

Portfolio manager’s expertise and record

Trusting the instincts alone does not help in portfolio management. We must assess the portfolio manager's numbers, history, records, and expertise. If the prospects are positive, you can invest your time and funds with them for future returns. 

Transparency and reporting

Disclosure of each decision taken by portfolio managers must reach investors. If you wish to approach a portfolio management service, ensure the provider offers clear and concise information about the investments and portfolio performance whenever asked for. 

Fees

Understanding the fee structure, assessment costs, and professional charges can further assist in comparing the investment with the potential returns. If you end up paying more than the average returns receivable, it indicates a switch to a better portfolio management provider. 

Regulatory compliance 

PMS providers that adhere to the rules and regulations, own licenses, and are legally registered are considered safe for your investments. The credentials build a sense of trust among the clients.

Portfolio Rebalancing: Definition and Importance

Investments, assets, and securities tradable in the market are volatile. However, with portfolio rebalancing, adjusting its impact on the overall performance is possible. Portfolio rebalancing is adjusting the existing investments to achieve the desired returns and mitigate risk to the maximum. Also, it ensures enough diversification of the assets in the portfolio. Most portfolio managers leverage this tool to gain exposure, avoiding overexposure to volatility in the long run. 

When to Rebalance Your Portfolio

If you want, rebalancing can happen any time of the year. However, that is not the right approach advisable. Following are the instances where investors can go for portfolio rebalancing:

  • Adjusting your portfolio is essential if your risk tolerance level has changed over time. Moving from a high-risk tolerance to a lower one can bring change in the securities held. You may not want to lose your investment. Hence, rebalancing can make you more conservative. 
  • Increasing volatility in the market can induce a behavioral change in the investors. They may wish to switch to less risky investments. In such situations, rebalancing can help gain the required balance. 
  • Any addition of financial goals or fast-approaching retirement can bring pressure to achieve the target corpus faster. You may want to rearrange or review your portfolio to complete the resolution within the given time frame. 

Rebalancing Strategies

Some popular rebalancing strategies adopted by professionals in the PMS sector include the following:

  • Time-conservative strategy 

A time-conservative strategy allows investors to review their portfolios at regular intervals, be it monthly, quarterly, or annually. For instance, you may choose to visit your portfolio every three months and make the required changes. 

  • Percentage-of-portfolio strategy 

Percentage-of-portfolio rebalancing is a technique to return the portfolio when diverted from its original goal. For instance, the original composition of a portfolio was 70% stocks and 30% bonds. Now, if the market turns volatile and you feel stocks are risky, you may shift the percentage of stocks from 70% to 60%, depending on the situation. 

  • Constant Proportion Portfolio Insurance (CPPI) strategy

CPPI is a portfolio management strategy that is both (aggressive and conservative) at the same time. In other words, it works dynamically as per the market conditions. So, if the market is performing high, the portfolio manager will invest more in risky assets like stocks. Likewise, when the market falls, the allocation shifts towards bonds (or conservative assets).

Examples

Following are the examples of how investors can choose the best portfolio management services for their portfolio:

Example #1

Suppose John has idle cash and wants to invest a part of it. However, he does not have enough time to manage his portfolio. As a result, he decided to approach Kevin (portfolio manager), who would invest on his behalf and rebalance it whenever required. During this time, Kevin advises John on the trending investments and their pros and cons. 

A few months later, the stock market fell, severely impacting John’s portfolio. However, with the liberty to manage his portfolio, Kevin quickly reallocated the funds and returned the portfolio to its desired expectations. 

Example #2

According to the news published as of December 2024, Apex Fintech Solutions and Advyzon have extended their partnership to create a portfolio management solution, Advyzon Investment Management (AIM), for advisors and portfolio managers. With this partnership, the advisors can leverage Advyzon’s innovative solution for rebalancing portfolios. Likewise, they can eventually reduce administrative burden by automating workflows, thus focusing more on client’s goals and partnerships

Features And Advantages Of Portfolio Management Service In India

  • Availability of customized solutions per your financial goals and risk tolerance level.
  • Adaptable risk management practices depending on your risk appetite.
  • Proper diversification of your investments in different asset classes.
  • Professional management of the assets within the portfolio and expert guidance on investments-related knowledge.
  • Implementation of rebalancing strategies for maintaining the desired risk profile and return rate.
  • Regular monitoring of the securities and reporting the portfolio performance to the investors. You must sit back and relax until you reap benefits from your investments.
  • Facilitates superior performance and generates risk-adjusted returns for you.
  • Helps maintain enough liquidity in the entire portfolio to access funds whenever required.

Conclusion

Managing a portfolio and related investments can be tough at the individual level. However, it can be solved through a portfolio management service that provides expert investment knowledge, tracks the market, adjusts the investments to desired goals, and helps achieve them before time. By considering certain factors like the portfolio manager’s expertise, track record, management fees, transparency, and client relationship, you can decide the best portfolio management service for yourself. Yet, it is equally important to conduct your research among the best PMS providers that align perfectly with your investment goals. As said, “An investment in knowledge pays the best interest.”

Frequently Asked Questions (FAQs)

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How to invest in portfolio management services?

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Which is the best portfolio management service in India?

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How many portfolio management services are there in India?

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