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smallcase vs PMS (Portfolio Management Services) 💼

smallcase has turned out to be quite a challenger for both mutual funds and PMS (portfolio management services). They are, at the end of the day, a bunch of instruments put together, which people can invest in.


However, there are key differences in how they function and operate. We compared smallcase to mutual funds (read more) earlier, and its not time we look at how they differ from PMS.


1. Product


PMS are portfolios managed by SEBI registered portfolio managers. They are made for individuals or families that have a high net-worth. These individuals or families seek personalised services and strategic advice on how they can grow their capital. Depending on need, a PMS can either be discretionary (managed entirely by the fund manager) or non-discretionary (specifically catered to the investors’ needs.


smallcases are baskets of stocks and/or ETFs that are created by SEBI registered investment advisors. They can be invested in as they are advised, or be modified by the investor as per their wish. Also, they aren't exclusively for the rich, but can be invested in by absolutely anyone.


2. Who can invest


A PMS is primarily for the rich. SEBI mandates the minimum investment at Rs. 50 lakh, making it rather tough for the regular investor to avail these services. This is primarily because a PMS can be risky to invest in, it can be concentrated, and can take exposure to some structured products. SEBI hence tries to ensure that you have a lot of money, and that your life won’t get hampered if the risk turns against you.


A smallcase on the other hand can have a minimum investment amount in the hundreds, making it accessible to everyone.


3. Ease of investing


In a discretionary PMS, each transaction in the portfolio needs to be confirmed over the phone by the investor.


However, a smallcase is tech-led, and the approval process is enabled through a few taps and clicks.


4. Returns


A PMS can provide excellent returns because of concentrated portfolios, and exposure to products which can further boost returns.


Returns for smallcases can vary depending on the investment advisor. Whilst that’s also true for a PMS, the breadth of quality is more for RIAs at present. You may have to hence pick the right manager for your money.


5. Fees


For a PMS, SEBI regulations state that the portfolio manager shall charge a fee as per the agreement with the client. It can be a fixed amount, or a performance-based fee, or even a combination of both. It isn’t uncommon for a PMS to charge a 2.5% fee on the assets invested, plus a profit share (and an additional fee) beyond a certain hurdle rate.


smallcases don’t really have fixed structures either. However, their fees are capped at 2.5% of the assets invested, or a fixed fee of up to Rs. 1,25,000. smallcase managers hence price differently - either a certain fee for a period (example - Rs. 999 for 6 months), or a percentage of assets.


The bottomline


While a PMS is a customised investment service for the rich, a smallcase delivers similar objectives, but for regular investors who can't afford putting Rs. 50 lakh in one product.


Also, while a PMS is individual-client focused, and can spread across all investment products, a smallcase is either modelled for mass use, or is thinly customised to match risk profiles. Also, a smallcase would be restricted to stocks and ETFs only.


However, even with these differences, both PMS and smallcase provide services that are highly professional, managed by experts, well-researched, in the investors’ best interest, and have a potential of generating returns that are more than ordinary.

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