FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
All You Need to Know About Portfolio Management Services!
PMS (Portfolio Management Services) entered the Indian markets during the period of late 90s and acquired the limelight during the bull phase of 05-08. But due to the market down fall, these services have lost their luster. But not many investors realize what this PMS is all about and how can one be benefited. Under Portfolio Management Services, not more than three to four products are managed. The idea is to keep the basics intact and try to enhance one’s returns by investing across these chosen products and review their performance over time. Having many products does not mean your portfolio is worth high value but having a few products whose performance is stable in these uncertain times is what is required. The most important rule is that your principles should match with that of your fund manager’s.
If you are a HNI (High Net worth Individual) this kind of service is definitely what you should be looking out for. Earlier the minimum amount that one can invest with a PMS was Rs 5 lakh but after SEBI addressed this as an issue since that amount does count an individual as a HNI, the minimum bar has been raised to Rs. 25 lakh. Now, if you are an individual who has a corpus of Rs 25 lakh what should you be doing next?
The next step is to decide whether you want to opt for a discretionary or non-discretionary service. Under discretionary service, your portfolio will be managed by your fund manager who holds a significant key to your portfolio’s performance. Your account, as an investor will be run by the fund manager once the power of attorney is signed, however, you will still have the right to view your account statement. This type of service is best adopted if you want to take advantage of professional management and a much more focused portfolio. It also works best in cases where the portfolio amount is large and where there is a possibility of customization.
The other option is non-discretionary. Basically, it is an equity advisory service. Under this type of service, the investor is contacted whenever any buy or sell decision is required to be made by the fund manager. Most PMS providers prefer to run their transactions in the non-discretionary mode in order to provide high transparency and ease in transactions to their clients. This type of service should be adopted by those investors who have the time to personally look into their investments frequently and bog down into intricate details.
The main disadvantage is that the details of the PMS’s performance are not publicly available. This makes it difficult for an investor to find the right service provider who is credible. There is no point in investing your funds in any asset if you have failed to recognize their efficiency in generating returns. You will ultimately become the borrower of debts like loans, personal loans etc to finance your requirements. Before any such uncertainty happens, a thorough check into the historical performance track record of the specific PMS and compare with other service provider is mandatory. It will give you an overview as to by how far your funds will be secure and the rate of return you can earn on them.
It is one of the age old practices to buy when the stocks are cheap i.e., during market crashes and hold them. However, analysts point out that, in these uncertain times it is difficult to invest in equities at this time therefore most Portfolio Management Service providers are looking forward for increasing their client’s exposure to their services however are moving at a slow pace towards investing their funds immediately into any fund. But another important fact to note is that, most HNIs recognize the necessity of hiring PMS services for them. They not only provide them with value added professional help but also provide them with the technology education as to how to view a fund’s performance and assess their performance over time along with the awareness that will enable their customers to become big players.