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Portfolio management is a professional investment service focused on managing an individual’s investment portfolio to achieve specific financial goals. It is typically offered by SEBI-registered portfolio managers and caters primarily to High Net Worth Individuals (HNIs) and Ultra HNIs (UHNIs).
Here, PMS managers review a person's risk tolerance level, time horizon, and financial objectives before recommending a strategy. This analysis also serves as a foundation for developing a strategy. It involves diversification, asset allocation, rebalancing, and regular monitoring of these investments.
Again, note that this strategy is not static rather dynamic. For example, suppose the fund manager believes the portfolio is deviating from its set objectives. In that case, they can make the necessary adjustments.
Wealth management is a comprehensive financial service that focuses on an individual’s overall financial well-being, not just their investments. Think of it as an umbrella solution that includes various aspects contributing to wealth preservation and growth. It typically covers areas such as risk management, goal setting, and asset management. Based on these, investors can access a wide range of services like estate planning, financial planning, tax optimization, and retirement planning.
Suppose a person is rich but has no idea where their money is going. In that case, wealth management can be a suitable solution. In that case, depending on the investor's profile, wealth managers will analyze the sources of wealth and then craft a strategy that minimizes the capital outflow. So, if the person ends up paying more tax, these services can help mitigate the excess.
You can think of portfolio management as zooming in on just your investments — stocks, bonds, and yields. Wealth management, on the other hand, takes a much broader view, helping you preserve, grow, and even pass on your wealth. It's like comparing a sharp stock strategist to a full-fledged financial planner.
For instance, a wealth manager might examine the overall financial situation rather than just the investments you own. So, if there are specific goals to be achieved at retirement, will creation, or tax planning, wealth management is the savior. However, this may not be the case with the other.
The following table outlines the differences between the two and the scope of services they provide.
| Factor | Portfolio Management | Wealth Management |
|---|---|---|
| Meaning | It refers to managing a client's PMS investment portfolio to achieve specific financial objectives. | It is a comprehensive approach to managing a client's overall wealth, including investments. |
| Purpose | To balance the risk-reward ratio and minimize losses by proper diversification of assets over portfolios. | The sole purpose is to preserve, grow, and transfer the client’s wealth across generations. |
| Audience/ Client base | It typically focuses on HNIs (High net-worth individuals) and UHNIs. | This holistic solution is available to high-net-worth individuals (HNIs) and families in need of financial assistance. |
| Services offered | Portfolio managers often manage investments (including stocks, bonds, and currencies) and suggest strategies to enhance them. | Here, investors can take advantage of services such as estate planning, tax planning, retirement planning, and financial planning. |
| Time horizon | Medium to long-term goals. | Mostly, long-term or intergenerational. |
| Designated person | Portfolio managers registered with the Securities and Exchange Board of India (SEBI). | Wealth managers |
| Customization | Ranges from medium to high, based on risk profile and end expectations. | It is highly customizable based on an individual's goals, family needs, and retirement prerequisites. |
The overall question of whether to choose a portfolio or wealth management depends on your requirements. Technically speaking, portfolio management is more focused on growing your investments, such as stocks, bonds, mutual funds, and currencies. If you're an active investor seeking expertise in this domain, this solution may be suitable for you. More often, it aims to understand your investment goals and risk appetite and then manage the investments.
At the same time, if someone requires a comprehensive plan that focuses not only on investments but also on overall financial health, wealth managers can work for you. You can plan your entire financial life - from investments to taxes, estate, and retirement over here.
At first glance, portfolio management and wealth management might seem like two sides of the same coin, but they serve very different purposes. If your main objective is to grow your investments, portfolio management may be all you need. But if you're looking for a broader plan that covers taxes, retirement, and even legacy planning, wealth management could be a better fit.
Either way, take a moment to think about your personal goals and check what each provider offers before deciding.
Disclaimer: The information, illustrations, and calculations provided in this blog are for general informational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any financial product. All examples and figures are purely illustrative and may be based on assumptions that can change over time. Actual results may vary and are subject to market risks and other factors. Readers are advised to independently verify all information and consult a qualified financial advisor before making any investment decisions. Neither the author nor ARSSBL shall be held responsible for any loss or liability arising from the use of this information.
