The rising income levels of Indians have given rise to the massive demand for professional wealth management services. Portfolio advisory services in India offer various wealth advisory services, including portfolio management services and non-discretionary portfolio advisory services.
These services portfolio advisory services offer advantages and disadvantages. A detailed look at the same can help you understand which service best suits you.
What Are Portfolio Management Services A PMS In India Offers?
Portfolio management services are specialized wealth management services professional portfolio managers offer to benefit from the opportunities in the stock market and other asset classes. PMS providers, such as asset management companies (AMC), independent individual portfolio managers, and large institutional managers exist today.
In this service, the portfolio manager makes all the investment decisions and has a power of attorney (PoA) to buy and sell shares on behalf of the investor. The portfolio manager individually and independently manages the funds of each client.
What Are Non-Discretionary Portfolio Advisory Services Offered By Portfolio Advisory Services In India?
In non-discretionary portfolio advisory services, the portfolio manager needs the client to confirm before buying or selling the stock recommended. As a result, the portfolio manager cannot execute buy or sell transactions at his own discretion as it is necessary to refer to the client for every transaction.
Non-discretionary portfolio advisory services offered by portfolio advisory services in India provide many benefits over portfolio management services.
The Benefits of Non-Discretionary Portfolio Advisory
1) Low brokerage costs
In portfolio management service, the portfolio manager may tend to churn the portfolio frequently, resulting in higher brokerage for the client. On the other hand, in a non-discretionary portfolio advisory service, the rate of churn in the portfolio will be lesser resulting in low brokerage costs.
2) Low tax liability
Apart from higher brokerage charges in a portfolio management service due to frequent churning of portfolios, it may also result in higher tax liability for the investor on short-term capital gains.
Every transaction of buying and selling shares by the portfolio manager may result in an incidence of capital gain/loss for the individual investor. If the holding period of shares is less than 1 year, short-term capital gains will be taxable at 15%.
3) Higher transparency
Non-discretionary portfolio advisory service offers a high degree of transparency as the investor is fully aware of the stocks in his portfolio. In contrast, a portfolio management service is not as transparent. In addition, in a non-discretionary portfolio advisory service, the final decision to invest or not in a particular stock recommended by the portfolio advisory service lies with the investor.
4) Low investment limit
The minimum amount for investment in a portfolio management service offered by portfolio advisory services in India is Rs.25 lacs, putting it beyond the reach of ordinary investors. However, there is no such limit on non-discretionary advisory services.
In a non-discretionary advisory service, an investor can start investing with any amount he or she chooses.
5)Total control in the hands of the investor
In a non-discretionary portfolio advisory service, it is up to the investor to decide whether he wants to invest in a particular stock or not from the list of stocks recommended by the non-discretionary advisory service. In addition, depending on the investor’s experience or dislike for a specific stock or sector, he has the liberty to avoid investing in that particular stock or sector.
For example, some investors may be averse to investing in stocks of companies which manufacture liquor like United Spirits, Radico Khaitan etc. or stocks of companies which manufacture cigarettes like Godfrey Phillips and ITC. Some investors may also dislike investing in stocks of companies engaged in the poultry business, such as Venkeys.
A non-discretionary portfolio advisory service offers a better proposition to investors than a portfolio management service mainly due to its transparent processes, and a higher degree of control is with the investor.
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