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Portfolio Management Services (PMS) refers to the investment solutions provided by fund managers to investors for managing their portfolios. Here, a portfolio fund manager is responsible for rebalancing the portfolio following the market conditions.
The sole objective of PMS is to align the investor's portfolio with their risk tolerance level, financial goals, and investment horizon. At this point, the fund manager may also provide an investment strategy to enhance the portfolio during this process.
Discretionary and non-discretionary PMS are portfolio management services available to investors. While the discretionary category allows fund managers to make the investment decision solely, the reverse is with non-discretionary PMS, meaning. Here, the client is assumed to have enough knowledge, time, and resources to track the market. Hence, the decision-making power in the non-discretionary category stays with the client; the manager only follows their orders.
Additionally, the manager can suggest ideas regarding portfolio rebalancing in a non-discretionary type. But as said before, they can only recommend. In contrast, the discretionary PMS allows a channel of freedom for the fund manager to handle the portfolio. They track the fund's market and make required transactions, keeping your investment requirements in mind. Also, the risk level is low as the manager takes care of the individual biases.
The prime difference between discretionary vs non-discretionary PMS lies in the investor's control over its portfolio. In the former, the manager has the full authority to make decisions on the investor's behalf. While on the non-discretionary side, the client has more control over the portfolio-related decisions and may approve the fund manager's recommendations if required.
The following table explains the difference between the types of PMS in detail:
| Difference | Discretionary | Non-Discretionary |
|---|---|---|
| Decision-making power | The fund manager takes all investment decisions | Here, the fund manager advises, but the investor makes final decisions. |
| Control | Complete control stays with the fund manager. | Control remains with the investor |
| Trade execution | Fund manager executes trades without client approval. | It is done only after the client’s approval. |
| Responsibility | It lies with the portfolio manager. | Shared responsibility lies between the manager and investor. |
| Suitability | It is ideal for investors who want passive involvement, without much intervention. | Suitable for experienced investors seeking control over their portfolio. |
| Customization | There is limited customization based on the manager's strategy | High customization is available according to investor preferences. |
Choosing between the PMS types comes from the experience of investing in the market. Also, what suits you may not be feasible for other investors. For example, discretionary PMS may be a good option if investors lack time and want the best for their money. Plus, it makes more sense for investors with limited knowledge who don't wish to make hasty decisions for their portfolios.
If you select non-discretionary PMS with an assumption of minimal market information, it can impact your portfolio. Here, the power of analyzing fund managers' options, ideas, or recommendations works. Investors who do not understand PMS investment strategies may approve or reject them randomly.
Similarly, taking too much time to analyze can delay approvals, eventually resulting in poor performance. As a result, the portfolio may have to suffer in return. Hence, evaluating one's market knowledge, available resources (like time), and analysis skills is important before approaching PMS services.
When managing your portfolio, choosing the right PMS service can help achieve portfolio results. The sole differentiation factor between both types depends on the experience, time availability, and level of control you wish to maintain. If you prefer a more professional approach, discretionary PMS is ideal. But a non-discretionary type may be suitable for someone confident in their financial knowledge and wanting to be actively involved in every decision. Ultimately, the apt choice is the one that aligns with your investment goals, comfort level, and risk appetite.
