Table of Contents
- What is Portfolio Management Services (PMS)?
- Understanding Discretionary PMS
- Understanding Non-Discretionary PMS
- Key Differences: Discretionary vs Non-Discretionary PMS
- Which Option is Right for You?
- Conclusion
Portfolio Management Services (PMS) have emerged as a sophisticated investment solution for high-net-worth individuals seeking professional portfolio management.
On the basis of decision-making, PMS is mainly categorized into two types – Discretionary and Non-Discretionary. Knowing the difference between them is key to selecting the approach that matches your goals and comfort level.
This comprehensive guide will help you understand both options and make an informed decision aligned with your investment objectives.
What is Portfolio Management Services (PMS)?
Portfolio Management Service is a professional investment management service where qualified portfolio managers construct and manage your investment portfolio based on your financial goals, risk tolerance, and investment horizon.
Unlike mutual funds, PMS offers customized portfolio construction tailored to individual investor requirements.
Key Characteristics of PMS:
- A minimum investment of ₹50 lakhs is required.
- Direct ownership of securities in your name
- Customized portfolio construction based on individual risk profile
- Professional management by SEBI-registered portfolio managers
- Transparent reporting and portfolio visibility (Client reporting is provided at least quarterly as mandated by SEBI; additional monthly statements may be provided at the manager’s discretion)
Discretionary PMS
In discretionary PMS, you grant complete authority to the portfolio manager to make investment decisions on your behalf without seeking prior approval for each transaction.
How Discretionary PMS Works
- Initial Assessment: Portfolio manager evaluates your risk profile, investment objectives, and financial goals
- Strategy Formulation: Development of customized investment strategy aligned with your profile
- Autonomous Execution: Portfolio manager executes buy/sell decisions independently
- Continuous Monitoring: Regular portfolio optimization and rebalancing
- Performance Reporting: Periodic reports on portfolio performance and transactions
All investments are executed subject to the PMS agreement, investment restrictions, and disclosures under SEBI’s Master Circular
Non-Discretionary PMS
Non-discretionary PMS requires approval from you before executing any investment transaction, maintaining your decision-making authority.
How Non-Discretionary PMS Works
- Research and Analysis: Portfolio manager conducts market research and identifies investment opportunities
- Recommend Investments: Preparation of detailed investment recommendations with rationale
- Client Consultation: Presentation of recommendations to you for approval
- Execution Upon Approval: Transactions executed only after receiving your explicit consent
- Ongoing Monitoring: Continuous portfolio monitoring with regular recommendation updates
All investments are executed subject to the PMS agreement, investment restrictions, and disclosures under SEBI’s Master Circular
Key Differences: Discretionary vs Non-Discretionary PMS
Aspect | Discretionary PMS | Non-Discretionary PMS |
Decision Making | Portfolio manager has full authority | Client retains final decision authority |
Speed of Execution | Immediate execution | Requires client approval, potential delays |
Time Commitment | Minimal client involvement | Regular client engagement required |
Control Level | Manager makes the decisions | Decisions made jointly (Manager suggests, client approves) |
Strategy Implementation | Complex strategies possible | Limited to client-approved strategies |
Emotional Bias | Eliminated | Risk of emotional decisions |
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Suitability | Busy professionals, institutional investors | Hands-on investors, learning-oriented clients |
As of May 2025, Discretionary PMS had a
Advantages and Disadvantages of Discretionary PM
Advantages of Discretionary PMS | Disadvantages of Discretionary PMS |
Professional Expertise: Access to experienced portfolio managers with deep market knowledge and analytical capabilities. | Limited Control: Complete reliance on portfolio manager’s decisions with no direct input in individual transactions. |
Time Efficiency: Eliminates the need for constant market monitoring and decision-making, allowing you to focus on other priorities. | Manager Risk: Portfolio performance heavily dependent on portfolio manager’s skills and decision-making capabilities. |
Quick Decision Making: Portfolio managers can capitalize on market opportunities and respond to market volatility without delays. | Approach Mismatch: Potential conflict if portfolio manager’s investment style doesn’t align with your preferences over time. |
Emotion-Free Investing: Removes emotional biases that often lead to poor investment decisions. | |
Sophisticated Strategies (Subject to PMS investment restrictions, client mandate, and risk management controls as per SEBI norms). |
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Advantages and Disadvantages of Non-Discretionary PM
Advantages of Non-Discretionary PMS | Disadvantages of Non-Discretionary PMS |
Investment Control: Maintain complete control over investment decisions while benefiting from professional research. | Time Intensive: Requires active involvement in decision-making and regular communication with portfolio managers. |
Transparency: Full visibility into investment rationale and decision-making process. | Delayed Execution: Market opportunities might be missed due to approval delays, especially in volatile conditions. |
Learning Opportunity: Gain market knowledge and investment insights through professional guidance. | Emotional Decision Making: Risk of making emotionally driven decisions that contradict professional recommendations. |
Customization: Ability to modify or reject recommendations based on personal preferences or market views. | Limited Strategy Implementation: Implementing complex strategies may be challenging when quick execution is needed. |
Risk Management: Personal oversight ensures investments align with your comfort level and changing circumstances. |
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Which Option is Right for You?
Choose Discretionary PMS If You Are:
Time-Constrained Professional: Limited time for investment research and decision-making due to professional commitments.
Institutional Investor: Managing large portfolios requiring sophisticated strategies and quick execution.
Performance-Focused: Primary objective is optimal returns without active involvement in day-to-day decisions.
Risk-Tolerant: Comfortable with professional judgment and willing to accept manager-driven decisions.
Choose Discretionary PMS If You Are:
Control-Oriented Investor: Prefer maintaining control over investment decisions while accessing professional research.
Learning-Focused: Interested in understanding investment strategies and building market knowledge.
Selective Investor: Want to evaluate and approve each investment based on personal preferences.
Conservative Approach: Prefer gradual decision-making with thorough evaluation of each recommendation.
Point to note: PMS performance, if shown, must be disclosed in TWRR terms—net of all client-borne fees, charges, and taxes—and relative to the SEBI-prescribed benchmark for the Investment Approach.
Advisory Portfolio Management Services
Apart from discretionary and non-discretionary PMS, there is a third type—Advisory PMS. Here, investors retain complete control, while portfolio managers only suggest buy or sell opportunities. The investor makes the final decision and carries out the transactions.
This approach is ideal for seasoned investors who have the expertise and time to manage their portfolios independently.
Conclusion
The choice between discretionary and non-discretionary PMS depends on your individual circumstances, investment objectives, and personal preferences. Discretionary PMS offers professional expertise with minimal time commitment, making it ideal for busy professionals and performance-focused investors.