..... . VALI disclosures . .....: 26/08/25, Types of Portfolio Services

Tuesday, August 26, 2025

26/08/25, Types of Portfolio Services

When you're trying to grow your money or plan for your retirement, how you manage the investments is just as […]

When you're trying to grow your money or plan for your retirement, how you manage the investments is just as important as where you invest.

That's where Portfolio Management Services (PMS) come in. They help create personalized strategies based on your goals and the level of risk you are comfortable taking.

But not all Portfolio management types are the same. It's important to know the difference between Discretionary, Non-Discretionary, and Advisory PMS, as each gives you a different level of control and involvement.

From complete delegation to personalized guidance, each type of PMS investment offers you a different level of decision-making freedom and customization.

As part of this beginner's guide to PMS, let's explore the different types of portfolio management services to help you choose the right one for your investment journey.

What Are Portfolio Management Services?

In simple terms, Portfolio Management Services (PMS) are professional investment services offered by qualified portfolio managers who build and manage a customized portfolio on behalf of clients.

Classification of Portfolio Management Services in India

In India, portfolio management services are typically classified into three broad categories, based on how investment decisions are taken and who controls the final execution.

Here's a quick look:

Portfolio Management Type	Decision Control	Execution	Investor Involvement
Discretionary PMS	Fund Manager	By Fund Manager	Minimal
Non-Discretionary PMS	Investor	By Investor	Moderate
Advisory PMS	Investor	By Investor	High

These classifications help investors select services based on their comfort with risk, investment knowledge, and time availability.

Discretionary Portfolio Management Services

Under Discretionary PMS, the portfolio manager takes complete control of all investment decisions. From choosing the right stocks to deciding when to buy or sell, everything is handled professionally without the investor's involvement.

Key Features

1. The manager has full discretion over the investment strategy:The portfolio manager independently selects assets, allocates funds, and manages investments without needing approval from the investor for each move.

2. Ideal for investors who prefer a hands-off approach:Perfect for those who want professional management without being involved in daily decisions or constantly monitoring the market themselves.

3. The portfolio is personalized based on the investor's risk profile, but the manager drives daily decisions:While tailored to your goals and risk level, the manager takes complete charge of buying, selling, and strategy implementation.

4. Generally suited for High Net-Worth Individuals (HNIs):Best for busy or less-experienced investors who trust professionals to manage large investments efficiently and strategically.

Discretionary PMS is among the most popular portfolio management types in India, especially for those looking for long-term wealth creation without daily market monitoring.

Non-Discretionary Portfolio Management Services

In Non-Discretionary PMS, the portfolio manager only provides recommendations. The final decision to buy or sell securities lies with the investor. Execution also happens only after the investor's approval.

Key Features

1. Investor retains control over final transactions:In Non-Discretionary PMS, the investor makes the final call, giving full control over buying and selling decisions.

2. Portfolio managers give advice, but no action is taken without approval:Managers suggest investment moves, but nothing happens unless the investor agrees, ensuring complete involvement in every portfolio decision.

3. Suitable for investors who are knowledgeable and want better transparency and control:Best for experienced investors who prefer to stay involved and value having a clear view of all portfolio actions.

4. Helps build confidence and allows for real-time involvement in the investment process:Since investors stay actively engaged, it boosts their confidence and understanding, making the investment journey more hands-on and transparent.

If you are someone who enjoys reviewing suggestions and wants custom advice with control, this type of PMS investment may be for you.

Advisory Portfolio Management Services

The Advisory PMS model is the most flexible and cost-efficient among all portfolio management types. Here, the manager provides advice, but the investor takes full responsibility for executing trades and managing funds.

Key Features

1. No direct execution by the portfolio manager:In this model, the advisor only gives recommendations-all buy/sell decisions and trade execution are done by the investor.

2. Offers suggestions for portfolio allocation, diversification, and asset strategy:The manager provides expert advice on where to invest, how to spread risk, and align strategy with financial goals.

3. Great for investors who prefer DIY investing with expert guidance:Ideal for investors who like managing their own money but still want support from professionals for smarter decision-making.

4. Often comes at a lower fee structure, making it an attractive option for cost-conscious investors:Since the advisor doesn't handle transactions, fees are usually lower, making it a more affordable choice for budget-aware investors.

Advisory PMS works best for financially savvy individuals who want expert inputs while maintaining full autonomy.

Which Type of PMS is Best for You?

Selecting the right types of portfolio management services depends on your investment goals, time availability, market knowledge, and risk appetite.

Here's a simple comparison to help you decide:

Factor	Discretionary PMS	Non-Discretionary PMS	Advisory PMS
Control	Low	Moderate	High
Cost	Higher	Moderate	Lower
Flexibility	Medium	High	Very High
Ideal For	Busy Professionals	Informed Investors	DIY Investors

SEBI Guidelines for Different PMS Types

The Securities and Exchange Board of India (SEBI) regulates all types of portfolio management services to ensure transparency, fairness, and investor protection.

Key Guidelines Include:

Minimum Investment: SEBI mandates a minimum investment of ₹50 lakhs for PMS accounts.
Registration: All PMS providers must be registered with the SEBI.
Disclosure Norms: Clear performance reporting, risk metrics, and fee structures must be disclosed.
Audit & Compliance: Regular audits and compliance checks ensure the safety of investor funds.

These regulations build trust and promote compliance in the financial ecosystem. Whether it's discretionary or advisory, every portfolio management type is subject to strict governance.

How Do Portfolio Managers Customize These Services?

Each type of PMS investment allows for customization based on client profiles, investment goals, and market outlook.

Common Customization Strategies:

Large-cap focused portfolios: Stable returns with lower risk.
Mid & small-cap portfolios: High-growth potential with higher volatility.
Thematic investing: Based on emerging trends like ESG, digital India, or green energy.
Sectoral Strategies: Focused exposure to sectors like banking, IT, pharma, etc.

Whether you choose discretionary or non-discretionary PMS, your portfolio can be customized with different strategies to match your goals, highlighting key PMS benefitslike flexibility and personalisation.

Common Myths About PMS Types

Many investors hesitate to use PMS due to confusion or myths around various portfolio management types. Let's bust a few of them:

Myth 1: Non-discretionary PMS means no advice

Fact: Non-discretionary PMS provides regular expert recommendations, but the investor takes final action.

Myth 2: Advisory PMS is the same as mutual funds

Fact: Mutual funds pool money from multiple investors, while advisory PMS offers personalized recommendations based on your profile.

Myth 3: Discretionary PMS locks you out of your portfolio

Fact: While the manager takes decisions, you can monitor performance and receive detailed reports regularly.

Myth 4: All PMS types are risky

Fact: Risk varies by strategy, not by portfolio management type. A conservative discretionary PMS can be less risky than an aggressive advisory plan.

Understanding the types of portfolio management services and debunking these myths can help you make smarter financial decisions.

Conclusion

Choosing the right type of portfolio management is like picking the perfect travel guide - you need someone who understands your journey and moves at your pace. Whether you are a busy professional seeking a fully managed solution or a hands-on investor who enjoys being involved, there's a PMS model that fits.

With guidance from a trusted share market advisor, you can assess your risk appetite, time commitment, and financial goals to choose between discretionary, non-discretionary, or advisory PMS services.

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Trade Cycles

The four important features of Trade Cycle are (i) Recovery, (ii) Boom, (iii) Recession, and (iv) Depression!

The trades cycle or business cycle are cyclical fluctuations of an economy. A full trade cycle has got four phases: (i) Recovery, (ii) Boom, (iii) Recession, and (iv) depression. The upward phase of a trade cycle or prosperity is divided into two stages—recovery and boom, and the downward phase of a trade cycle is also divided into two stages—recession and depression.

Phases of Trade Cycle:

The phases of trade cycle are explained with a diagram:

(1) Recovery:

In the early period of recovery, entrepreneurs increase the level of investment which in turn increases employment and income. Employment increases purchasing power and this leads to an increase in demand for consumer goods.

As a result, demand for goods will press upon their supply and it shall, thereby, lead to a rise in prices. The demand for consumer’s goods shall encourage the demand for producer’s goods.

The rise in prices shall depend upon the gestation period of investment. The longer the period of investment, the higher shall be the price rise. The rise of prices shall bring about a change in the distribution of income. Rent, wages, interest do not rise in the same proportion as prices.

Consequently, the margin of profit improves. The wholesale prices rise more than retail prices. The prices of raw materials rise more than the prices of semi-finished goods and the prices of semi-finished goods use more than the prices of finished goods.

(2) Boom:

The rate of investment increases still further. Owing to the spread of a wave of optimism in business, the level of production increases and the boom gathers momentum. More investment is possible only through credit creation. During a period of boom, the economy surpasses the level of full employment and enters a stage of over full employment.

(3) Recession:

The orders for raw materials are reduced on the onset of a recession. The rate of investment in producers’ goods industries and housing construction declines. Liquidity preference rises in society and owing to a contraction of money supply, the prices falls. A wave of pessimism spreads in business and those markets which were sometime before sellers markets become buyer’s markets now.

(4) Depression:

The main feature of a depression is a general fall in economic activity. Production, employment and income decline. The prices fall and the main factor responsible for it is, a fall in the purchasing power.

The distribution of national income changes. As the costs are rigid in nature, the margin of profit declines. Machines are not used to their full capacity in factories, because effective demand is much less. The prices of finished goods fall less than the prices of raw materials.

✳Reality Tips to Traders

1)Trading in the stock market is a marathon. 2)Protecting your capital is key. (Learn to protect first) 3)Making 0 on the day is better than losing 50k 4)Losses happen; they are part of this business. 5)It’s not you vs. the market. It’s you VS you. 6)You are your biggest enemy; learn to be mentally disciplined. 7)Don’t follow the majority; follow the correct path. 8)Traders without a stop loss end up not being traders for long. 9)There is always another trade. 10)The big money is made waiting for the right set-ups. 11)Waiting for the right trade is the most powerful strategy. 12)It is better to cut a loss than to wait to be proven right. 13)Position sizing can make or break you. 14)Worry about the downside before you even think about the upside. 15)Don’t listen to headlines

..BANKING TERMINOLOGY

There are various types of Banks: PSU Banks, Private Banks, Co-operative/Regional Banks, Small Finance Banks and Foreign Banks. When you deposit money in a bank, let's say the bank gives you an interest rate of 4%. But when the bank lends out this money, they lend it out at say, 12%. The difference of 8% in the above scenario is effectively the profit of the bank! The loans that do not pay interest for 90 days are known as Non-performing Assets. Banks have to provide for such bad loans. Structure of a Bank Asset for a Bank: The asset portion of a bank's capital includes cash, government securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank loans). Liabilities for a Bank: The bank's main liabilities are its capital (including cash reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments). Banks are required to maintain Liquidity with the Reserve Bank of India: SLR (Statutory Liquidity Ratio): It is the money a bank needs to preserve in the form of cash, gold or government Bonds before providing credit customers. This limitation is added by RBI on banks to make funds available to customers on-demand at your earliest convenience. Banks are required to maintain SLR at 18%. CRR (Cash Reserve Ratio): Banks are required to hold a certain proportion of their deposits in the form of cash. Banks don’t hold these as cash with themselves, but deposit such amounts with RBI / currency chests. CRR rate is at 4.5% currently. Repo Rate: The rate at which the RBI lends short-term money to the banks. The RBI through its Monetary Policy committee changes the repo rate to balance growth and Inflation. Reverse Repo rate: The rate at which banks park their short-term excess liquidity with the RBI. Now let us understand various terminologies for Banks Net Interest Income (NII): This is the spread the bank makes on its lending. It is calculated as Interest Income – Interest Expended Net Interest Margin (NIM): This is the spread the bank makes on its lending. It is the earning which is left after deducting the cost paid to depositors from its yields on Loans. This is denoted in % terms. The formula is Yield on Loans – Cost of funds Capital Adequacy Ratio (CAR): The capital adequacy ratio (CAR) is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. Essentially, it is the Capital that is available to lend. Tier I Capital – In simple words this capital is freely available with the bank to lend out. Tier II Capital- This is the capital tied up somewhere and is less freely available to lend. In case of an adverse event, the bank can use this capital to lend. Under Basel III norms, a bank’s tier 1+tier 2 capital must be a minimum of 8% of its risk-weighted holdings. The minimum capital adequacy ratio, also including the capital conservation buffer, is 10.5%. Current Account Saving Account (CASA)- There is no interest paid on the Current Account and a small interest rate is paid on a savings account. The combination of both is called CASA which shows the liabilities of the bank on which it pays relatively less interest. Deposits: Bank deposits are a savings product that customers can use to hold an amount of money at a bank for a specified length of time. In return, the financial institution will pay the customer the relevant amount of interest, based on how much they choose to deposit and for how long. Now let us come to NPA. Gross NPA (GNPA): It is the total loans on which no payment has been paid for 90 days or more. GNPA % is usually shown in each Bank’s quarterly results. The percentage is basically the GNPA amount as a % of the total advances. Slippages: Slippages denote the fresh amount of loans that have turned bad in a year. The slippage ratio of a bank is calculated as Fresh accretion of NPAs during the year /Total standard assets at the beginning of the year multiplied by 100. Provisioning Coverage Ratio (PCR): This is the ratio of provisioning to GNPA and indicates the extent of funds a bank has kept aside to cover loan losses. For Instance, a company has GNPAs of Rs 100 and they have set aside 50 Rs, then the PCR is 50%. Net NPA (NNPA): The total figure left after deducting provisions made for bad loans from GNPA. (GNPA – Provisions+upgrades/writeoffs = NNPA) Special Mention Account (SMA) SMA-0 is a category in which stress with respect to the principal and interest has remained overdue for a period of 0 to 30 days. SMA-1 is a category in which stress with respect to the principal and interest has remained overdue for a period of 30-60 days. SMA-2 is a category in which stress with respect to the principal and interest has remained overdue for a period of 60-90 days

..... . VALI disclosures . .....

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Tuesday, August 26, 2025

26/08/25, Types of Portfolio Services

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