How to Choose a PMS: Our 4-Filter Framework
As your clients become wealthier, they are likely to start looking at more aggressive investment avenues beyond to mutual funds. This is where Portfolio Management Services (‘PMS’) kicks in at an entry point of ₹50 lakhs. It gives direct stock exposure to clients with the intent of generating greater alpha via a more concentrated active portfolio.
For MFDs exploring PMS, the challenge is rarely finding options. It is knowing which ones deserve a client's attention and a place in their portfolio.
We, at Creso, have scanned the PMS universe and applied four filters before shortlisting any strategy / scheme.
Before that, here is a quick refresher on what PMS is all about:
What is PMS?
Portfolio Management Service (PMS) is a SEBI-regulated investment service in which a professional portfolio manager builds and actively manages a customized portfolio of securities on behalf of an individual client. Some key features of PMS are:
The securities are held directly in the client's own name/demat account, not pooled into a fund (like Mutual Fund or AIF)
Minimum ticket size is Rs. 50 lakhs
Has multiple types like discretionary PMS (where manager takes all decisions and makes the trades); non-discretionary PMS (where client’s approval is required for each trade) and advisory PMS (manager only advises, client decides position sizing and executes)
Fees can be fixed, performance based or hybrid (mix of both). The performance fee may be subject to a hurdle rate (minimum rate of return) and the ‘high water-mark’ principle.
Every buy/sell the fund manager executes to rebalance the portfolio is a taxable event for the investor immediately and not deferred to an eventual redemption (like in case of a mutual fund). This makes PMS materially more tax-intensive for active strategies with high churn
Suitability for clients
PMS is a good fit for investors who:
Can meet and sustain the ₹50 lakh regulatory minimum without over-concentrating their overall net worth
Have a genuine 5+year horizon spanning at least 1 full market cycle
Are comfortable with concentrated, high-conviction portfolios and 30–40% drawdowns without panic-selling
Prefer direct stock ownership, customization, and portfolio transparency over pooled-fund simplicity
Have the tax-filing discipline (or CA support) to handle direct, transaction-level capital gains
Our Shortlisting Framework
In a universe of 500+ PMS houses (with most having multiple strategies), we have applied a four-pillar framework to shortlist some strategies.
AUM/Size
We considered PMS schemes managing at least ₹1,000 crore, with one exception: ABSL Select Sector PMS. Scale matters because it suggests a strategy that has earned investor trust and has the operational depth to run it. But size is not a quality guarantee. Think of it as a first screen that narrows a large universe to a workable set, not a verdict on performance.
Fund manager / AMC background
Next, we evaluated the background of the AMC or fund house. This covered promoter background, institutional pedigree, and the fund manager's track record in past organisations. In PMS, the portfolio is built around the manager's conviction, so the person and the platform behind the strategy carry real weight. A manager's earlier experience can also show how they handled different market conditions. In PMS, who manages the money matters as much as the strategy.
Portfolio composition & performance
We then reviewed each portfolio by market capitalisation, to understand where the strategy invests across large, mid and small companies. We also looked at performance over longer-term market cycles rather than recent returns alone. A strategy that looks strong in one phase may not hold up in another, which is why a longer lens is more useful.
Channel checks
Finally, we spoke with few senior industry folks to better understand each manager's investment process and quality. Factsheets show what a portfolio holds. Conversations with people who follow these managers closely help explain how decisions are actually made.
This process gives you a clear answer when a client asks, "Why this PMS?" It also helps you explain why other schemes did not make the list.
How Distributors and Investors can use this framework
Shortlisting is only the starting point. A shortlisted scheme is not automatically right for every client. Suitability, risk appetite and investment horizon should still guide the final recommendation, along with a clear discussion of risks.
Distributors can use this as a shortlisting tool, alongside suitability and asset allocation considerations
Investors can use it to identify PMS schemes that have demonstrated long-term performance, rather than relying on just recent returns
This methodology is not a recommendation system, but a decision-support framework designed to bring discipline, transparency, and consistency to the evaluation process.
FAQs
Q: How do I choose the best PMS in India?
A: Start with a screen rather than a returns-based ranking. Check strategy size, the manager's background and past record, portfolio composition by market cap, and performance across full market cycles. Then match the strategy to the client's risk appetite, horizon and existing portfolio.
Q: How do PMS distributors earn commission?
A: PMS distributors earn trail commission only, paid out of the fees the portfolio manager collects. SEBI banned upfront commission in PMS from 2020. The distributor must disclose this commission to the client before onboarding.
Q: How is PMS taxed in India?
A: Every sale inside a PMS portfolio is taxed in the client's hands in that financial year. Listed equity held up to 12 months attracts 20% STCG, and equity held longer attracts 12.5% LTCG on gains above ₹1.25 lakh. High-churn strategies therefore create more tax than a mutual fund held for the same period.
Q: What is the exit load in PMS?
A: SEBI caps PMS exit loads at 3% of the amount redeemed in year one, 2% in year two and 1% in year three. No exit load can be charged after three years.
Q: Is PMS better than mutual funds?
A: Not automatically. PMS offers concentration, customisation and direct ownership, but it costs more, carries higher drawdown risk and is less tax-efficient for active strategies. For many clients below ₹1 crore of investable assets, good mutual funds remain the better fit.
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Disclaimer
The shortlists have been prepared based on qualitative as well as quantitative factors. We have sourced data from individual fund websites, APMI database and other publicly available sources. These shortlists are intended solely for educational and informational purposes and should not be construed as investment advice, a recommendation, or an opinion on the suitability of any mutual fund scheme.
Equity investments are subject to market risks, including the possible loss of principal. Past performance and ranking outcomes do not guarantee future results. The methodology does not account for individual investor objectives, risk tolerance, financial situation, or tax considerations.
The shortlisted schemes may change over time due to market conditions, portfolio changes, or methodology updates. Investors and distributors are advised to exercise independent judgment, conduct their own analysis, and consult appropriate financial or tax advisors before making any investment decisions.
The use of shortlists should be only one of several inputs in the investment decision-making process and not the sole basis for selection.
