The rising income levels of Indians have given rise to huge demand in professional wealth management services. Portfolio advisory services in India offer a variety of wealth advisory services which include portfolio management services and non-discretionary portfolio advisory services.
Both these services offered by portfolio advisory services have their own advantages and disadvantages. A detailed look at the same can help you understand which service is best suited for you.
What Are Portfolio Management Services Offered By Portfolio Advisory Services In India?
Portfolio management services are a specialized wealth management service which offers a range of investment strategies by professional portfolio managers to benefit from the opportunities in the stock market and may also include other asset classes.
There are many types of PMS providers, such as asset management companies (AMC), independent individual portfolio managers and large institutional managers.
In this service, the portfolio manager makes all the investment decisions and has the 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. 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 offers many benefits over portfolio management services such as:
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 non-discretionary portfolio advisory service, the rate of churn in portfolio will be lesser resulting in lower brokerage costs.
Lower tax liability
Apart from higher brokerage charges in a portfolio management service due to frequent churning of portfolio, it may also result in higher tax liability for the investor on account of 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. In case the holding period of shares is less than 1 year, short term capital gains will be taxable at a rate of 15 percent.
Non-discretionary portfolio advisory service offers a high degree of transparency as the investor is fully aware of the stocks in his portfolio whereas a portfolio management service does not offer such transparency. 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.
Lower investment limit
The minimum amount for investment in a portfolio management service offered by portfolio advisory services in India is Rs.25 lacs making it beyond the reach of many common investors. However there is no such limit in non-discretionary advisory service.
In non-discretionary advisory service, an investor can start investing with any amount he/she chooses to invest.
Total control in the hands of the investor
In 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. Depending on the investor’s own experience, or dislike for a particular stock or sector, he has the total 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 have a dislike for investing in stocks of companies which are engaged in the business of poultry such as Venkeys.
To conclude, non-discretionary portfolio advisory service offers a better proposition to investors over portfolio management service mainly due to its transparency factor and higher degree of control which vests with the investor himself.