PMS (Portfolio Management Service)

Portfolio Management Services occupied the space between mutual funds (collective, standardised, retail-accessible) and AIFs (pooled, illiquid, primarily institutional or ultra-HNI) in India's investment product landscape. Under a PMS arrangement, each investor maintained a separate, individually held demat and trading account, with the portfolio manager exercising discretionary or non-discretionary management authority over it. Unlike a mutual fund where all investors shared a pooled NAV, each PMS client owned their own portfolio of stocks — meaning individual cost bases, personalised tax accounting, and direct visibility into every stock held.

SEBI's PMS Regulations required all portfolio managers to be registered, with minimum net worth requirements for the management entity and mandatory disclosures through a standardised Disclosure Document. The minimum investment amount was raised from Rs 25 lakh to Rs 50 lakh by SEBI in January 2020, reaffirming the product's positioning as a high net worth offering rather than a retail product.

PMS products in India were broadly categorised into discretionary (where the portfolio manager made all investment decisions independently based on the agreed mandate), non-discretionary (where the manager provided advice and the client approved each transaction), and advisory (where the manager only advised and the client executed independently). Discretionary PMS was by far the most prevalent, and hundreds of SEBI-registered portfolio managers offered distinct strategies — large-cap quality, concentrated mid-cap, value-oriented, sector-specific, or quantitative strategies.

The performance reporting and transparency standards for PMS were significantly improved by SEBI through circulars requiring standardised presentation of returns using time-weighted returns (TWR), benchmark-adjusted performance attribution, and detailed quarterly reporting. A centralised PMS performance reporting database maintained by SEBI's regulator and industry body PMS Bazaar allowed investors to compare historical performance across registered managers, though past performance was explicitly not indicative of future results.

The tax treatment of PMS differed importantly from mutual funds. Because each investor owned their own portfolio, every buy and sell transaction in the portfolio had direct tax implications for the investor in that year — gains were classified as short-term or long-term capital gains based on the actual holding period of each position, unlike a mutual fund where only the redemption date from the fund triggered a tax event. This made PMS more tax-complex than mutual funds for investors, particularly in high-turnover strategies.