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Portfolio Management is a core financial segment that deals with the investments and portfolios of High-net-worth individuals (HNIs) and Ultra-high-net-worth individuals (UHNIs). And managing these investments requires the intervention of another person, primarily the Portfolio Managers. But why is a portfolio manager needed?
In this blog, we delve into the role of portfolio managers, their responsibilities and duties, the regulatory framework governing them, and more. Keep reading to find out more!
A Portfolio Manager is a licensed investment professional who constructs and manages portfolios based on a client's financial goals, risk tolerance, and investment horizon. They use their expertise to ensure optimal asset allocation, diversification, and performance aligned with evolving market conditions. Acting as strategic custodians of the client’s capital, they continuously monitor and adjust the portfolio to safeguard it against market volatility and keep it aligned with long-term objectives.
Before engaging in this process, fund managers make a steer attempt to understand the client thoroughly. They might ask questions regarding your investment goals down the line, the amount of risk you're able to take, and expectations. This further enables the fund manager to develop the PMS strategy with ease. Once understood, the fund manager will devise a plan that aligns with your goals.
At the discretionary level, there are specific portfolio manager duties or roles that must be followed. It includes;
Portfolio managers do not receive one type of client. It can vary from retail investors to institutional investors, and so do their expectations. Hence, it is vital to define what their end goals are and how long they wish to stay invested. This is only possible through one-to-one interaction with the client, where their risk tolerance level, investment goals, and time horizon are understood.
PMS plays a major role in channeling the portfolio into several routes. It provides an opportunity for the fund manager to diversify investments across several asset classes. Instead of investing in a single asset, they will diversify their investments across various options, including stocks, bonds, and mutual funds.
While asset allocation and portfolio diversification may sound the same, a PMS manager treats them like siblings. They will cater to other asset categories, but the allocation percentage is crucial. Depending on the client's risk appetite, they will then decide the allocation rate.
The market brings uncertainty and wild fluctuations within the portfolio. Hence, it is necessary to manage them upfront. And that's what the role of a portfolio manager includes. They ensure that there is enough shield present to protect the investments' overall worth.
Eventually, the portfolio manager's duties do not end with just strategy creation or risk management - regular intervention, review, and tracking of its performance are necessary. They continually evaluate the portfolio and enable rebalancing whenever necessary.
There are mainly two types of PMS managers;
When catering to HNIs and UHNIs, PMS managers must follow SEBI PMS regulations, which are subject to change. Some of them include;
PMS firms must have a separate legal identity, independent boards, and infrastructure mandated.
For HNIs and UHNIs, the minimum investment requirement in PMS is ₹50 lakhs. Likewise, Portfolio managers must maintain a minimum net worth of ₹5 crores as per SEBI requirements.
Here, PMS companies cannot pool funds (from investors) as schemes, unlike mutual funds. Funds and securities of PMS and from other clients must be kept separate. Additionally, there should be daily reconciliation and monthly client statements prepared.
Without using distributors as intermediaries, PMS must offer direct onboarding with clear and transparent disclosures.
Any change in control must be initiated and approved by SEBI. Also, clients must have an option to exit (without paying the exit load) within 30 days of receiving the approval.
Portfolio managers are not just professionals but guardians of their clients' investments. As they understand their client's goals in suggesting an investment strategy, these managers are always concerned about the portfolio's health.
If you believe your investments deserve expertise and strategic planning, consider exploring SEBI-registered portfolio management services that align with your financial goals.
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.
