How to choose the right PMS fund for 3-4 year horizon?

Name withheld on request

PMS is an investment product suitable for high-net-worth individuals who can afford considerable investment risk and have a minimum investment amount of Rs. 50 lakhs. There are many PMS fund managers in India, each with different options based on their asset allocation, theme, etc. An important difference between a PMS and a mutual fund is that in a PMS the investment holding is in the name of the investor. separate account) and hence, is liable to capital gains tax whenever the PMS manager trades on behalf of the investor.

The first issue to tackle would be to see whether investing ‘bulk’ of your savings in PMS funds is a wise option. A better approach would be to consider PMS as a part of your overall portfolio and assign it an appropriate risk weight depending on the type of PMS product chosen. For example, you decide to have 80:20 equity in your portfolio for debt allocation, and 80% for equity, you choose 40% in large-caps and the rest in mid- and small-caps. Out of this, you can choose which portion will go to passive mutual funds, which portion will go to active mutual funds and which portion will go to PMS funds. In general, the more active the requirement for a portfolio, the more favorable a PMS fund would be. So, for example, you can invest all or part of your 40% mid and small cap allocation in a PMS fund (provided that 50 lakh limit).

Please do not be misled by notions of ‘market approach’ to make such choices.

Coming specifically to your situation, you should sit with the PMS fund manager and decide which type of fund would be suitable for a 3-4 year plan. Like mutual funds, you need to look at the consistency of past performance and the likely costs for PMS.

Srikant Meenakshi is the co-founder at PrimeInvestor,