HNIs Turn Towards PMS For Customised Alpha Generation
Over the years, India has witnessed a sharp rise in its wealthy, with reports stating that the country houses over 1000 individuals who have amassed a wealth of over INR 1000 crores each. Further, these uber wealthy individuals are not merely resting on their laurels. Rather, they are taking concerted steps to augment and supplement their accumulated wealth in the most holistic manner possible. In this scenario, limiting their investments to only traditional asset classes such as equities, debt, real estate and gold becomes untenable for India’s ultra-high net worth individuals keen on generating a robust alpha over benchmark indexes. And this is where Portfolio Management Services or PMS platforms make their presence felt.
Assessing India’s PMS landscape
A large number of India’s ultra-rich are pivoting towards the professional and customised wealth management solutions being offered by the country’s PMS platforms. How exactly does a PMS function? The platform encompasses financial experts who are skilled in handling a large corpus and have a proven track record of generating a sizeable alpha through the utilisation of multiple financial instruments.
Further, PMS’ focus on creating bespoke and concentrated portfolios for HNIs, in alignment with the latter’s risk profile, return requirements, time horizon and investment goals, making these platforms increasingly attractive to savvy investors who know exactly what they are looking for. Accordingly, the domestic PMS industry has witnessed its total assets under management surging from INR 10.45 lakh crore in financial year 2016 to almost INR 28 lakh crore in the last financial year. The PMS platform’s minimum investment requirement of INR 50 lakhs also aligns well with HNIs keen on availing a diversified portfolio.
PMS – the road to riches?
As India’s surging HNI and UHNI populace look for optimally tailored solutions to cater to their growing wealth management requirements, PMS platforms, with their nominal fees, when compared to the underlying potential for alpha generation, rise to the top. In fact, reports suggest that an increasing number of inflows into PMS products are now hailing from cities beyond the big 5, namely Mumbai, Delhi, Chennai, Kolkata and Bengaluru. This transition is being prompted by wealthy families’ focus turning towards professional financial management, from the previously entrenched habits of parking their savings in real estate and gold.
Add to it the fact that around 32 PMS schemes offered double-digit one-year returns ranging between 10% and 35% in 2022, and there is no doubt that the road to riches is being paved by these new age entities. Star performer ICICI Prudential PMS Contra Strategy, which is a contra focused PMS fund, unlocked stellar returns of 25% over the last one-year. In comparison, its benchmark S&P BSE 500 TRI delivered a return of 11.3%, depicting the vast difference in the returns offered by traditional assets and PMS platforms while highlighting PMS’ tremendous potential for generating significant alpha.
Is PMS for you?
The question then arises – is PMS the right solution for your wealth management requirements? The answer is yes, if you live up to the following attributes – firstly, an ideal PMS investor has a solid understanding of financial markets, investment instruments, and portfolio management strategies, along with the ability to comprehend complex financial concepts and assess the performance of their portfolio effectively. Secondly, you should exhibit a balanced risk appetite, and understand that higher returns often come with higher risks. If you are comfortable with volatility in your portfolio and are prepared for short-term fluctuations while focusing on long-term wealth creation, then PMS is the right fit for you.
Further, ideal PMS investors exhibit patience and discipline in their approach, resisting the temptation to make impulsive decisions based on market volatility. You should also have the time and interest to maintain an open line of communication with your PMS manager, discussing portfolio performance, goals, and any changes in your financial situation to ensure the portfolio remains aligned with your needs. Finally, you also need to be aware of the tax implications of your investments, as PMS solutions frequently focus on tax-efficient strategies.
If your requirements and goals fit the bill, then a PMS investment could be the best way to round out your portfolio and attain optimal returns.
About Author:
Vikas Gaba, Managing Director, Kainos Investments.
