Q. Do you pay dividends akin to a Mutual Fund?
Under the Portfolio Management Service, we do not pay
any dividend to you. But if the companies in which we
invest declare dividend, then the proportionate dividend
will be allocated to you based on logical holding. This
dividend shall be tax-free in your hands. You have option
to withdraw partially (subject to residual corpus not
going below the minimum stipulated sum)
Q. What is the difference between a discretionary
and a non-discretionary Portfolio Management Services?
The discretionary portfolio manager independently manages
the funds of each client in accordance with the needs
of the client in a manner, which does not partake character
of a Mutual Fund. The client cannot have control over
the decisions taken for the management of his/ her portfolio.
On the other hand, the non-discretionary portfolio manager
only provides advisory services to the client where
the client retains the decision-making powers in the
portfolio. We offer Discretionary Portfolio Management
Services.
Q. Do you guarantee the initial corpus and
any ‘return’ thereon?
As per regulations governing Portfolio Management Services
in India, neither capital nor returns can be guaranteed.
We shall endeavor to outperform the benchmark indices
like Nifty but there can be no guarantee or certainty
of the same. We believe, over long term, equities’
performance will track corporate performance. We expect
India’s GDP to grow at 7-8% p.a. in real terms;
or 12-13% p.a. in nominal terms. The industrial and
services sector should grow at a faster pace. Therefore
historical trends indicate that well managed portfolios
in Indian equities can yield upto 20-25% p.a. returns.
However the future returns may be very different for
market risk as well as risk with any portfolio manager’s
judgement.
Q. Does the Portfolio Management Service have
any lock-in period?
The Portfolio Management Service has no lock-in period
and you can make withdrawals by simply putting in a
request for the desired amount. It is however, prudent,
to specify the minimum period for which you are willing
to invest at the time of signing the agreement. This
will enable the portfolio manager to design the portfolio
in accordance with your needs. It is also advisable
to keep any equity portfolio invested over a longer
term because in the long run, equities outperform most
other asset classes.
Q. Do you charge any entry or exit load akin
to a Mutual Fund?
We do not charge any entry or exit load.
Q. What is the Minimum Size of Portfolio?
As per SEBI regulations, the minimum size of the portfolio
is Rs.5 lacs. However the current charge structure,
makes it more attractive to invest Rs.25 lacs or more.
Q. What is your investment philosophy?
We invest as per objectives of a particular scheme.
We typically pay more attention to a company’s
fundamentals, valuations and technical trends and lesser
weightage to macro factors. Our portfolios do not mimic,
indices and are more governed by the bottom up approach.
Q. Is there a maximum limit for investing in
the Portfolio Management Service?
There is no upper limit on the amount you can invest
in the Portfolio Management Service.
Q. How can I introduce my initial corpus?
Initial corpus can be brought into the Portfolio Management
Service by way of either Cash and/ or securities/ shares.
The initial portfolio of securities/ shares will be
re-aligned as per the model. We sell shares as required
to get the holdings re-aligned as per the model portfolio.
Q. At what frequency, can I see my NAV, positions
and transactions?
You can check your Net Asset Value (Net Worth) on a
daily basis by logging on to our website. In addition,
you get Quarterly statements of transactions, holdings
etc typically within 15 days of the ensuing month. You
can also access these reports online.
Q. Can I specify limits, upper and/or lower
for the NAV at which my account should be automatically
terminated?
You can specify such limits in Customized PMS. In other
schemes, no such limits can be specified. However at
any time you can make a request for a withdrawal, either
partial or full.
Q. Why should I pay performance fees?
Performance fee is charged for two reasons :
1. Any PMS Scheme has an inherent cost structure, which
is taken care of with a defined fee structure. Our fee
structure is designed to ensure that a larger part of
the fee is charged subject only to the performance of
the fund.
2. World over, portfolio managers operate on a fee based
model comprising a fixed retainer and a share in profit.
It also incentivises the Portfolio Manager since they
have a stake in the profitability of the portfolio.
For the purpose of performance fees, profit will be
considered as Net Profit after all charges like management
fee, brokerage, and custody related charges etc are
taken into consideration.
Q. Will we share the losses?
As per the current Portfolio Management Scheme guidelines,
no portfolio manager can legally share losses. World
over, portfolio managers operate on a fee based model
comprising a fixed retainer and a share in profit and
no share in losses. Equity investments are always subject
to market risk which all clients should be aware of
before investing in any PMS scheme.
Q. How is the performance fee calculated if
the portfolio closes at a loss at the year-end?
For charging Performance Fees, we follow the high watermark
concept. This is explained in the following example;
| Year End |
NAV at beginning of
the year |
NAV at the end
of the year |
Gain |
Performance
Fees |
| 1 |
5,000,000 |
5,800,000 |
800,000 |
80,000 |
| 2 |
5,800,000 |
5,500,000 |
(300,000) |
Nil |
| 3 |
5,500,000 |
5,900,000 |
400,000 |
10000* |
* 10% of [Rs.5,900,000-
Rs.5,800,000] |
Rs. 5,800,000 is
the previous portfolio value where performance
fees had been charged |
Performance fees are charged only when the value of
the portfolio goes beyond the previous profitable portfolio
when performance fees were charged and so on and so
forth.
Q. What reports do I receive on my portfolio
account?
All Portfolio Clients will receive the following reports
on a fortnightly basis :
• Performance Summary of Portfolios
• Transaction Statement
• Holdings statement
• Realized gain/ loss statement
• Quarterly Review Report
In addition all portfolio clients will also have access
to the website as mentioned earlier where they can view
their portfolios online.
Q. Will I receive Contract Notes/Bills? How
are the transactions executed under the Portfolio Management
Scheme?
Under the PMS scheme, all transactions in each individual
stock are pooled together for execution and then allocated
to individual clients at the end of the day on the weighted
average cost (as allowed under SEBI guidelines). This
ensures that all clients get the benefit of a uniform
rate to avoid discrepancies in portfolio performance.
Since individual contracts cannot be generated under
the pool system, portfolio clients will not receive
Contract Notes/ Bills. The Portfolio Manager gets contract
notes/ bills from the broker for the entire portfolio,
which can be verified by any client with prior notice.
However, as specified earlier, they will receive fortnightly
Transaction Statements, which will enable the clients
to see the transactions done in their respective accounts.
Furthermore, we give a chartered accountant certified
accounts statement, details of all transactions, dividend,
short term/ long term gains etc to meet accounting and
tax requirements of clients.
Q. How are the shares held under the PMS scheme?
Are they held in each individual’s account or
with a custodian?
IISPL (the Portfolio Manager) has a custodial arrangement
with HDFC Bank wherein all the shares pertaining to
the relevant scheme will be kept in a pool account opened
in the name of the relevant scheme. The breakup of the
shares held in each individual account will be provided
to the client in the Holding Statement. The advantage
of this facility is that, if and when, the opportunity
arises, to invest in an IPO, the Portfolio Manager will
be able to do so with ease. In case of NRI clients however,
a separate DP account will be opened for each client
as per the SEBI guidelines.
Q. Can I specify investments that I want or
don’t want to hold?
Since we offer only Discretionary Portfolio Management
Services, the discretion to invest primarily lies with
the Portfolio Manager. Any securities/ shares handed
over as initial portfolio will be aligned to the model.
Therefore, it is advisable that you should hand over
only those securities/ shares, which you are willing
to sell and retain the ones you want to hold.
Q. Do you invest in IPOs?
If the Portfolio Manager finds any IPO, which presents
a good investment opportunity then the Portfolio Manager
will invest in the relevant IPOs.
Q. Do you invest in Derivatives (Futures/Options)?
Under SEBI guidelines, a Portfolio Manager is allowed
to invest in the Derivatives Segment only to the extent
of the value of the portfolio. This has also been mentioned
in the Disclosure Document and clients are advised to
read it carefully before investing. However, our policy
will be to use Derivatives only as a hedging strategy
and will be restricted only to those portfolios, which
have a short term outlook on the investment strategy.
Q. Do you invest in debt instruments? What
proportion?
Most of the portfolios, being equity portfolios, will
only be invested in the equity markets. In the Customised
Scheme, however, only after having decided the asset
allocation based on the risk/ return profile of the
client will the portfolio be invested accordingly which
could also include debt instruments in the proportion
best suited to the client’s risk-return profile.
Q. Do you indulge in day trading under the
Portfolio Management Service?
Our Portfolio Management Schemes are designed from a
long term perspective and we will invest in accordance
with the objectives of each Scheme. It is advisable
to keep any equity portfolio invested over a longer
term because in the long run, equities outperform most
other asset classes. Therefore, we will not indulge
in any day trading activities under the Portfolio Management
Service. Moreover, SEBI guidelines forbid any day trading
activity by Portfolio Managers.
Q. What would the Portfolio Manager do in case
of falling markets?
To begin with we will assess the situation on two parameters
• Whether the fall is a mere correction
• Signal of reversal of trend
Based on our assessment of the fall, we will accordingly
decide on the necessary course of action. In the first
instance, depending on the anticipated extent of the
correction, we may increase the percentage of cash in
the portfolio. Since our focus is always to invest in
those companies which are available at an attractive
valuation, we believe that in the long term, any stock
will always seek its fair valuation which is unaffected
by corrections in the market.
If however, we see signs of a trend reversal, our
focus may change to increasing the cash component and
restrict investments to defensive sectors which have
low beta relative to the markets.
Q. Do you book losses and exit long positions?
We do so in a situation where the rationale and the
assumptions behind our investment idea are proved contrary
to our expectations.
Q. What is the paperwork and documentation
needed to open a PMS account?
Documents required :
• Account opening form
• A letter from you stating you have understood
the terms and conditions and the risk disclosure document.
• Declaration for "Connected Person"
as per SEBI Regulation
Q. Can I open a joint account?
A Joint Account cannot be opened under the PMS scheme.
However, a nomination facility is available whereby
the account holder can specify the nominee.
Q. Do I need to have Permanent Account Number
A Permanent Account Number (PAN) has to be provided
for investment in the PMS scheme.
Q. What are the tax implications of investments
in PMS?
Under the Portfolio Management Scheme, each transaction
scheme will be considered as an independent trade and
capital gains will be applied on each trade depending
upon whether the relevant stock was held long term or
short term. Presently 10% tax is chargeable for Short
Term Capital Gain and no tax is chargeable on Long Term
Capital Gains. In addition the relevant STT charges
will also apply. In case of NRIs, however, as per the
RBI guidelines, the bank automatically deducts tax at
source.
Q. What is the safety of clients’ portfolios
with you?
IISPL (the Portfolio Manager) currently has net worth
of over Rs.1.2 bn. Further, the company does not indulge
in proprietary trading. It is professionally managed
by a team with an impeccable track record and is a profit
making entity thereby lending safety to the customers’
money. In addition, as a precautionary measure, we keep
the custody of shares with a reputed bank (currently
with HDFC Bank). In any case (as per advice from our
legal counsel), the beneficiary ownership of shares
remain with the customers and is not affected by company’s
performance or solvency.
