Investment needs vary from individual to individual. Some of us want to retire early, while some of us are planning for children’s education or a vacation abroad. One’s investment objectives must be in line with one’s own plans for the future. But deciding on one’s investment objectives is just one step. You also need to actually put your plans into action. You have to choose the investments that reflect your objectives.
You also have to regularly monitor their progress and decide on the next course if the outcome varies from your expectations. In short, you must be ready to sacrifice a great deal of your time if you want to see your investment turn into a golden goose.
Johnny: But what about people like me who believe in doing it themselves but have no time to actually chase a golden goose?
Jinny: You can always seek professional help. If you are more of a “do it yourself” kind but find yourself hard-pressed for time, you can think about utilizing the services of a portfolio manager for investment.
Johnny: Can you explain a little bit more about portfolio managers, Jinny?
Jinny: Portfolio managers take care of your investments by providing many services under one roof.
First and foremost, portfolio managers help in identifying the investment objectives of each individual client. With professional help by your side, it becomes much easier to look at the big picture.
Second, portfolio managers actually look after the day-to-day management of a portfolio of securities or the funds of their clients, as the case may be, in line with their investment objectives. All portfolio managers must have a certificate of registration from the Securities and Exchange Board of India, or Sebi, the stock market regulator. A class of portfolio managers known as “discretionary” portfolio managers, as per Sebi regulations, enjoys considerable freedom in taking day-to-day decisions of investments under the overall terms and conditions of a contract.
Another class of portfolio managers known as “non-discretionary” portfolio managers acts more like an accountant and has to take all investment decisions as per the directions of the client.
Johnny: Many services under one roof. But can you explain how portfolio managers are different from mutual funds?
Jinny: There are many differences, some of which might have become strikingly apparent to you by now. Mutual funds pool the money of different investors for a common ready-made scheme. There is no focus on the needs of individual clients. What’s good for Peter is also good for Paul.
Illustration: Jayachandra / Mint
There is no one-to-one interaction between the mutual fund manager and the client. You can’t call your mutual fund manager to discuss a forthcoming IPO, or initial public offering. In contrast, portfolio managers provide customized service, keeping in view the needs of each client.
Each client has his or her own individual portfolio. There is also a constant one-to-one interaction with the client. That’s what makes a difference. You feel as if you are the only passenger on a chartered flight.
Johnny: In that case, portfolio management services must cost a fortune.
Jinny: Before you start thinking about using portfolio management services, I would like to clarify some things. First, as per Sebi regulations, portfolio managers can only accept a minimum investment of Rs5 lakh from their clients. This investment can be either in the form of money or in the form of securities worth Rs5 lakh.
No portfolio manager can accept an investment below that amount, so there is no point in looking for a portfolio manager if you do not carry at least Rs5 lakh in your pocket. In fact, many portfolio managers provide more customized services if you have much more to invest.
So you need to check the details of services offered for different amounts of investments by different portfolio managers. A list of portfolio managers is available on the Sebi website (www.sebi.gov.in).
Second, portfolio managers charge fees which may be a fixed amount or a return-based fee or a combination of both as per the agreement with the client. For instance, a portfolio manager may charge a flat fee of, say, 1% of the value of assets under management and a 10% fee on all profits above a certain amount.
This is just a hypothetical example; in fact, Sebi regulations have not prescribed any scale of fees to be charged by the portfolio manager and the fees charged vary greatly from one portfolio manager to another. You should actually find out about the fee structure before choosing any portfolio manager.
All portfolio managers have to provide a disclosure document at least two days prior to entering into an agreement with the client. This, among other things, tells you about the fee structure, the performance of the portfolio manager and the audited financial statement of the portfolio managers for the preceding three years.
Johnny: Thanks for sharing all this information, Jinny. One should always be careful while investing one’s hard-earned money.
What: Portfolio managers look after the day-to-day management of a portfolio of securities or funds of clients.
How much: They can only accept a minimum investment of Rs5 lakh from clients.
Where: Portfolio managers have to obtain a certificate of registration from the Securities and Exchange Board of India.
Shailaja and Manoj K. Singh have important day jobs with an important bank. But Jinny and Johnny have plenty of time for your suggestions and ideas for their weekly chat. You can write to both of them at firstname.lastname@example.org