Portfolio Management Services (PMS) is a tailor-made investment service offered to cater the investments objective of niche segment of investors with minimum ticket size of ₹ 50 lacs. The clients can be Individuals or Institutions with high net worth. In simple words, a portfolio management service provides professional management of your investments to create long term wealth. The primary aim of PMS is to provide over and above the average returns to the investors. Your money will get personal attention by the PMS Manager – also known as Portfolio Manager. These PMS managers are experts who are well-versed with the market happenings and they can better guide you on important investment decisions. They also provide the following services:
PMS Investors gets ownership in the individual shares as the stocks lies in the clients demat unlike mutual funds. Investors have a demat and a bank account in their name with the power of attorney (POA) in favour of PMS manager. In a discretionary portfolio, the manager independently manages the funds of each client in accordance with the needs of the client while a non-discretionary portfolio is managed as per client’s direction. That said most portfolios today are discretionary.
Alternative Investment Funds (AIFs) are relatively new concept of investments in India which have been defined in Regulation 2 (1) (b) SEBI (Alternative Investment Funds) Regulation, 2012. It refers to any privately pooled investment fund from niche & sophisticated segment of investors, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP). The minimum ticket size of ₹ 1 Crore makes it an exclusive, UHNI & Institutional investment product. To enhance risk adjusted performance, AIFs uses various complex strategies like – long-short hedging, unlisted equities, pre-IPO investments, real estate, structured credit and other special situation investments.
For all intents and purposes, SEBI currently recognizes AIFs as private investment funds which are not covered by the current jurisdiction of any regulatory body currently operating in India. Being a private investment fund, AIFs are not available through IPOs or other forms of public issue which are applicable to Collective Investment Schemes and Mutual Funds that are registered with SEBI. As per existing AIF regulations, these private investment funds have been divided into 3 unique categories – Category I, Category II and Category III and the minimum qualifying amount for these schemes is ₹ 20 crores. The only exception to this rule is angel funds that have lower qualifying criteria in terms of fund corpus.
As per SEBI AIF Regulations, 2012 Alternative Investment Funds shall seek registration in one of the three categories
Tenure and Listing of Alternative Investment Funds / Schemes:
Just as in Mutual Funds for choosing the right PMS/AIF, you need to choose the right PMS Manager and the right Management Team in case of an AIF (An AIF generally has a 3 member team with various independent advisors as well). In fact, since with PMS/AIF the managers have more freedom and flexibility it is even more important to see that the fund is managed by a consistent performer. We at Richfield Fintech tie-up only with the best managers across India with a good track record to show for themselves and ensure that the record is consistent across all categories of funds managed by the Manager along-with being consistent across all market cycles.
Gain in the PMS is taxed as capital gains. If the holding of the stock is less than 12 months, it is considered as STCG (Short Term Capital Gain) and taxed at 15% + surcharge. In case of 12 months and above holding it is LTCG (long term capital gain) and taxed at 10% + surcharge. Dividend income is taxed at slab rates as per the new Finance Act. The PMS sends quarterly reports along-with Advance Tax & TDS Calculations for the benefit of their investors.
Category I and Category II AIFs – Pass through status which means income from these funds is taxed at the investor level and not at the fund level. However, the fund deducts 10% on the income credited to the investor.
Category III AIFs - In Cat III AIFs, the income is taxed at the fund level and the rate depends on the investment strategy and asset allocation of the fund. Here the income is considered as the income under the heads of profits or gains from business and the investment fund is taxed in respect of such income at the maximum marginal rate of tax.