A new investment model allows portfolio managers to build custom portfolios using mutual funds and ETFs instead of direct stocks. With a mandatory minimum investment of ₹50 lakh, this approach offers high-net-worth individuals professional asset allocation and diversification. Unlike standard mutual funds, this structure focuses on curating multiple funds tailored to an investor's specific risk profile and financial goals.
The landscape of Portfolio Management Services (PMS) is shifting as firms introduce offerings that invest exclusively in mutual funds and exchange-traded funds (ETFs) rather than individual company shares. This structure brings the professional oversight typically associated with PMS to a wider range of investment products, moving the focus from stock-picking to strategic asset allocation.
How This Model Functions
In a traditional equity PMS, managers build a concentrated portfolio by selecting specific stocks. In contrast, an MF-based PMS acts as a layer of management above existing mutual fund schemes. The manager researches market trends and selects a mix of funds that work together to meet a client's specific objective. By investing in funds rather than stocks, this model aims to reduce the concentration risk that can sometimes affect equity-heavy portfolios.
This approach differs from a standard Fund of Funds (FoF) because it allows for higher levels of personalization. While an FoF is a static scheme that investors buy into, an MF-based PMS is an active service where the manager can adjust the allocation between debt, equity, or specific investment styles—such as value or growth—based on current market conditions and the investor’s personal mandate.
Key Differences for Investors
One of the most important factors for investors to consider is the cost and regulatory framework. Like all PMS products in India, MF-based PMS requires a minimum investment of ₹50 lakh, as mandated by the Securities and Exchange Board of India (SEBI). Because these services are actively managed, investors should be aware that management fees, performance fees, and potential exit loads can differ significantly from the lower-cost structures found in regular mutual fund schemes.
Additionally, the rebalancing process is a critical part of the strategy. Managers must evaluate tax implications and exit loads when switching between funds to maintain the desired asset allocation. Because these portfolios are linked to market performance, they carry the same fundamental risks as equity or debt mutual funds, and there is no guarantee of returns.
Monitoring Performance and Suitability
Investors looking at these products should track how managers benchmark their performance. For example, some strategies use broad market benchmarks like the S&P BSE 500 Total Return Index to measure their effectiveness. Before committing, it is essential to conduct due diligence on the investment mandate, the track record of the portfolio manager, and the overall fee structure to ensure it aligns with long-term financial goals. Understanding whether the strategy provides enough added value through its allocation decisions compared to a standard, lower-cost mutual fund remains a central consideration for any potential participant.