GIVEN the proliferation of mutual funds, there are many investors who have invested in a host of schemes without any particular strategy. Some of the units may have been purchased by subscribing to a new fund offer (NFOs), while some may have been purchased from an existing scheme.
For such investors who wish to have guidance on their portfolio and at the same time want to invest in mutual funds, a portfolio management scheme (PMS) in mutual funds makes sense. Based on your risk profile, a professional fund manager will run a portfolio of mutual fund schemes for you. By offering you a PMS through mutual funds, the advisor provides a value addition and hence charges you an advisory fee.
The approach is similar to that of a fund of funds concept. However, under PMS, brokerages and professional portfolio managers hand pick funds for your portfolio based on your specific needs. The various offerings available to investors are:
MUTUAL FUND PMS
With entry load having been abolished, broking houses have started offering PMS schemes through which they can offer value-added service to their clients and charge a fee for the same.
Typically, a minimum of Rs 5 lakh is accepted under this arrangement. Schemes here could be purely large cap in nature for low-risk investors, and could have a combination of large-cap, midcap and small-cap funds for high-risk investors. The PMS provider does a risk profiling for each client and could customise your portfolio.
As a prudent risk management strategy, he also limits exposure to individual stocks across the fund at 6%, and exposure to industry at 15%. If you are keen not to put any money with a particular fund manager or fund house you can put that condition across.
NON-DISCRETIONARY ONLINE PMS
There are websites like iFAST Financial which provide a platform for PMS services. The main advantage is that PMS is non-discretionary in nature. Based on advice from the advisor, the client could ask the portfolio provider to execute his advice. For clients who want non-discretionary PMS, the account offers flexibility as you have only one-time formalities of account opening. The advantage of such a system is that every advice along with reason could be documented.
ASSET ALLOCATION FUNDS
This is a sub-category of fund of funds. Fund houses such as Templeton, Birla Sun Life and ICICI Prudential offer these to investors. The funds are aimed at offering customised solutions taking into account investors' risk appetite. In some cases, the age of the investor is used to ascertain the risk profile. Again, being a type of fund of fund, the cost is restricted to 0.75% of the assets under management. One can start with Rs 5,000. In most cases, the fund houses prefer to select funds from their own stable than choosing from options available with other fund houses. This may act as an impediment to getting into the best option in the space. The key benefit is that implementation is very easy. For example, if the fund manager's view is to shift from large-cap to mid-cap stocks, in a normal equity fund, he would have to construct a portfolio. Here, he simply buys into a mid-cap fund into the proportion he wishes to.
FUND OF FUNDS
This is the simplest of the avatars available in the market. As an investor you simply have to fill up a form and write a cheque to invest. You can even opt for an SIP in this scheme. The scheme chooses to invest in an array of products in line with its investment objective. Optimix has come out with multimanager schemes. Quantum MF has also come out with an equity fund of funds. One can start with as low as Rs 5,000. The funds in most cases prefer to invest in funds across MF houses. Quantum, for example, does not invest in any of the equity funds of the Quantum AMC. The fund selection is done by personalfn.com, a group entity in the financial planning and advisory space. The money managers work with the objective of wealth creation in the long term. The portfolios are disclosed at regular intervals. Cost is restricted to 0.75% of the assets under management. The drawback of this scheme is that it lacks customisation.
