How to choose the right PMS fund over a 3-4 year period?

My husband and I plan to invest most of our savings in a portfolio management services (PMS) fund. We are both in our 30s and salaried. Our investment term is 3-4 years. How do we choose the right PMS fund?

—Name withheld upon request

PMS is an investment product suitable for high-income individuals who can accept substantial investment risks and a minimum investment amount of $50 thousand. There are many PMS fund managers in India, each with many options differentiated by asset allocation, subject, etc. An important difference between PMS and mutual funds is the investments held. held in the PMS are held in the investor’s name (in a separate account) and are therefore subject to capital gains tax whenever the PMS manager transacts on the investor’s behalf.

The first issue to deal with is to see if investing ‘most’ of your savings in a PMS fund is a wise choice. A better approach is to treat PMS as part of your overall portfolio and, depending on the type of PMS product chosen, assign an appropriate risk weight to it. For example, you decide to allocate 80:20 equity to debt in your portfolio, and in 80% equity you choose to have 40% large cap and the rest in equity. medium and small. From there, you can choose which shares to go to passive mutual funds, active mutual funds, and PMS funds. In general, the more active the portfolio requirements, the better suited a PMS fund. So, for example, you can invest all or part of 40% of your small cap allocation in a PMS fund (provided the fund meets $threshold of 50 lakh).

Please do not be persuaded by the perception of ‘market outlook’ to make such choices.

To be more specific to your situation, you should sit down with a PMS fund manager and decide what type of fund would be a good fit for a 3-4 year plan. As with mutual funds, you need to consider the consistency of past performance and the potential costs incurred for a PMS.

Srikanth Meenakshi is a co-founder at PrimeInvestor.

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