THE way to wealth lies not merely in earning more, but in ensuring that you make your money work as well. In their quest to get their money to work harder, investors scout for options that offer best returns. Those who have time on their side and are confident of their investment skills choose their own stocks. Others leave that to mutual funds. But those who do not want to invest on their own and yet want more customisation could opt for portfolio management services. However, it is possible to get the best of both — professional advice and customised service only if there is scale, ie investments in the range of Rs 10-25 lakh. With the Indian equity markets coming of age, there is a plethora of choices. Competition among service providers has resulted in PMS being segmented in terms of investment style. Here’s a look at some of them:
TRADITIONAL PMS
Here, the fund manager builds a portfolio by buying stocks on the basis of fundamental research. The ‘go-anywhere’ strategy gives the fund manager enough leeway to take the optimal route for increasing wealth. The portfolio built could be merely large-cap in nature or small-cap in nature or a mixture of both. However, as we move ahead, there are specialisations in the money management business. Let us see how the offerings work.
VALUE INVESTING
It is a philosophy founded and developed by Sir Benjamin Graham and followed by the likes of Warren Buffett. It involves buying stocks which quote at a discount to intrinsic value. It is generally long term in nature and stocks bought here have to be held for as long as 3-5 years. “Those who want to buy something worth Rs 100, at a price substantially less than Rs 100 should go for this style,” says IV Subramaniam, CIO, Quantum Advisors. There are service providers available in the market who strictly go with Grahamian value investing principles. One can also come across money managers giving a thought to special situations arising out of delisting, buyback of shares, restructuring and turnaround of businesses.
QUANTITATIVE INVESTING
In this method, the fund manager uses quantitative models which are based on company fundamentals, accounting and economic data to build a portfolio of stocks for you. Although fairly successful globally, this is a new concept offered in India. “Investors looking for consistent, stable returns from large-cap equities should use this approach,” says Radhika Gupta, founder and director, Forefront Capital, which offers quantitative PMS to its clients in India. Quantitative investing, however, works well only with large-cap stocks, and hence, those looking for multi-faceted returns should not go for this style of investing.
TECHNICAL PMS
Portfolio managers now adopt strategies based on technical parameters or arbitrage opportunities. Pro Tech PMS of Sharekhan is one such scheme that invests using technical analysis. The idea is to offer absolute returns to the investor, irrespective of the market going up or down. The product called Nifty Thrifty is an index-trading mathematical model and tries to capture the direction of the market and aims at giving absolute returns to investors.
MONEY MANAGEMENT
“When the market turns bearish, it goes through various phases namely those of euphoria, denial, fear, panic. Similarly, there is denial, overconfidence and greed when the market moves from bear to bull markets,” says Shrirang Joshi, MD, Maia Financial Services, which has recently started offering PMS services to clients, using this as a technique.
A point to note is a good understanding of behavioural aspects offers the investor or money manager good entry or exit points. However, there is a need to back this entry or exit with a good reasoning based on fundamental or technical analysis. Generally, service providers here club behavioural investing with the fundamental investing.
There are fund managers who look at statistical tools such as correlation between various markets and various asset classes before taking macro calls. Pair trading is also prominent when it comes to short-term trading ideas. “With the advent of new products such as interest rate futures and currency futures, we are approaching the dawn of new money management game in the near future,” says an investment strategist with a foreign bank.
CHOOSE YOUR MANAGER TYPE OF PMS
Fundamental & value investing
PROVIDER: Brokerage houses like Way2Wealth, Alchemy. Motilal Oswal, Parag Parikh, Angel Broking and several boutique firms
MINIMUM AMOUNT: Could vary between Rs 5 lakh-25 lakh
ADVANTAGES / DISADVANTAGES: The style of managing the portfolio is well-defined. Online access to portfolio.
FEES: Managers charge 1-2.5% as upfront fees. There is a performance-linked fee which could vary from 10-25% payable quarterly. Some take a profit share once they cross a hurdle rate of 10-15%
TRACKING MECHANISM: Monthly portfolio statements work as a good tracking tool. Transaction statements help you monitor brokerage costs. You can talk to your portfolio manager or relationship manager in case you need guidance
Technical, quantitative behavioural finance PROVIDER: Sharekhan, Forefront Capital, Maia Financial MINIMUM AMOUNT: Rs 5 lakh
ADVANTAGES / DISADVANTAGES: Relatively new product in India. Boutique firms offering these may not have a past track record FEES: In case of technical PMS, some firms do not charge an upfront fee. They take a 20% profit sharing on booked profits