What factors should I keep in mind when buying a PMS?

When it comes to selecting the 'right' PMS portfolio, Anvil PMS (Portfolio Management Service) serves as one example illustrating the potential risks you might encounter. However In a market offering a wide array of choices (PMS strategies) but with limited data, the task of choosing the right PMS becomes notably more challenging.

But, you can narrow down the risk by being mindful of a few key aspects. What are they, and what are the key factors you should consider before investing in a PMS?

Understanding Portfolio Management Services

A Portfolio Management Service (PMS) is a professional investment service where a portfolio advisor manages your investment portfolio on your behalf, wherein the assets are held in your demat account.It offers a much more personalized investment strategy tailored to meet your specific financial goals and risk preferences, which can also be similar to a mutual fund but personalized for your niche requirements. The minimum investment required to join is at least 50 lakhs 

What happened with Anvil PMS?

Anvil PMS has ceased operations, within which AWM operated three strategies: Anvil Long Holding Strategy, Alpha 25, and Anvil Wealth Compounders - with assets totaling over ₹1,300 crore by April.

Anvil Long Holding Strategy, the biggest scheme, returned 21.3% in the past 5 years and 18.3% since its inception. The shutdown was triggered by SEBI’s interim order in March last year, which restricted six entities, including AWM's fund manager Kaushal Chandarana, for their involvement in front-running trades of AWM.

In simple terms, "front-running trades of AWM" means people made trades before AWM's clients, possibly even AWM's own staff or associates. For example, if AWM planned to place a bulk order of a stock for its clients, those involved in front-running could buy shares of that stock before AWM's trade, expecting the price to go up once AWM's trade happened. This unfair behavior can harm AWM's clients by giving them less favorable prices or allowing others to profit unfairly.

How does this impact you?

This case suggests that similar problems could happen with other firms, including yours, if you were to invest in a PMS strategy. Nonetheless, SEBI has been actively monitoring licensed firms for unfair practices over the past 5-10 years. This oversight is designed to ensure that firms uphold their fiduciary responsibilities, prioritizing client interests. The objective is to foster a system where both investors and the firms they invest in mutually benefit.

 However, we are still in the ongoing developmental stage, implying that there is always room for both risk and opportunity when investing your hard-earned money, in pursuit of better customization and return potential for your money.

Analyzing Risk vs. Benefits: Given the considerable potential for both risk and opportunity, it becomes essential to analyze and measure the risks against the benefits for each investment avenue, particularly when considering investing in a PMS. As it is a relatively newer product in India, regulatory scrutiny is still in its nascent stage, offering limited options to safeguard investors from the regulatory side.

PMS Past Performance

When surveying the PMS market, it's evident that the majority of funds fail to even beat their benchmark. However, it's only the Selective PMS strategies that have historically offered greater return potential, especially for investors seeking better returns over the long term. These strategies have essentially delivered a return of over 25% year-on-year on average for the past 5-10 years, which can exponentially ramp up the compounding of your wealth over time.

For example, the UNIFI Capital Blended Rangoli PMS Portfolio has consistently delivered a return of 28.82% each year, resulting in your wealth compounding at 29% annually.

Trailing Returns (%)	6m return	1y return	2y return	3y return	5y return
UNIFI Blended Fund-Rangoli	15.84%	37.50%	15.53%	27.07%	28.82%
BSE 500 TRI	16.20%	33.42%	16.47%	21.89%	18.50%

Which means if you were to invest 1Cr in this specific fund over the next 5 years, it could potentially yield 3.57Cr, providing an additional 2.57Cr by investing in the right PMS strategy. But how do you find such niche-specific strategies?

What key factors should I keep in mind when selecting a good PMS strategy?

1.Understand Your Risk Tolerance and Investment Objectives: Before selecting a PMS, it's essential to have a clear understanding of your risk tolerance and investment objectives. Determine whether you're comfortable with aggressive, moderate, or conservative strategies. Communicate these preferences clearly to the PMS provider, so they can tailor their approach accordingly. Ensure that the PMS provider's investment philosophy aligns with your objectives to avoid unnecessary risks.

2. Past Performance Track over 5-10Yrs: While past performance is not a predictor of future performance, analyzing performance over a 5-10 year period can provide valuable insights into a portfolio management strategy's consistency and resilience across different market conditions. By examining long-term performance trends, you'll understand strategies that have demonstrated durability and adaptability over time, giving you confidence in their potential to navigate various market cycles successfully.

Since past performance data can be quite limited, working with a financial counselor can provide you with much-needed performance analysis from over 100 PMS (Portfolio Management Service) options available.

3. PMS House Track Record: Though the performance of a fund is a key factor that most of us take into consideration, what's the point of good performance if the fund house itself is going to wind up after a point in time?

Therefore, it’s crucial to note how good and effective the management is in managing the fund, the transparency and clarity they maintain in their practices, and the values they bring in.Important questions such as 'can you trust them?' arise, and as financial counselors, we consider it vital to thoroughly assess the quality of management. What are the qualifications of the team? What credibility do they bring? We at Cambridge Wealth take special consideration of the qualitative analysis of the investment product houses (who curates them),even conducting third-party checks. Due to this, none of our investments were focused on any aspects of a fund house similar to Anvil PMS House.

3. Cost Vs Return Analysis: Since there’s no guarantee that the higher the performance fee you are paying, the higher the returns will be generated, with multiple PMSs on the rise, it’s crucial to find niche PMS strategies that actually give the value for the cost you are paying. Finding the effective return after factoring in all associated costs and taxes is essential in this regard.

4. Assess Transparency and Communication: Transparency and communication are vital aspects of any PMS relationship. Ensure that the PMS provider is transparent about their investment strategy, portfolio composition, and fees. Understand how they select securities, manage risks, and make investment decisions. Additionally, evaluate their communication channels and frequency of updates.

A PMS provider should keep you informed about your portfolio's performance, changes in strategy, and any significant developments in the market. Choose a PMS provider who prioritizes transparency and maintains open lines of communication to mitigate the risk of unexpected outcomes.

In Conclusion

These factors constitute the fundamental preliminary analysis that you need to consider before investing in a PMS. At Cambridge Wealth, we specialize in analyzing funds not only quantitatively but also qualitatively. With this approach, we consistently reduce the likelihood of encountering any funds that may face SEBI scrutiny, and, above all, the right strategy that can deliver the returns you expect from a more more advanced investment product.