Debt PMS Compare

Additional Useful Information

• Only those companies which are authorized by government agencies such as the SEBI are allowed to operate Portfolio Management Services.

• Currently, the minimum amount that can be accepted by a Debt PMS company is ₹50,00,000. Therefore, this investment mode is suitable for more experienced and mature investors with a larger investable fund.

• Debt PMS is considered a good investment option for those investors with a longer-term investment horizon of up to 3 to 5 years.

• Portfolio Management Service companies have a dual fee structure –
• Management Fees – A fixed fund management fee is charged on an annual basis. This is typically 2% of the funds under management and is charged irrespective of whether profits are generated or not.
• Profit Sharing – This is an amount that is charged only if the company generates a return beyond a minimum specified percentage. For example, let us say that the profit sharing is 20% beyond the minimum return of 10%. Therefore, any returns earned by the investor above this minimum 10% return, will have 20% profit sharing charged by the PMS company.

• These fees and charges vary from between different PMS companies.

• An investor can withdraw the amount fully or partially at any time subject to the terms and conditions laid down by the PMS companies. There is no lock-in period.

Returns *

• Debt PMS companies do not guarantee returns. However, the scope for generating above average returns is high due to the aggressive & active management by the fund managers of the PMS company.

• Returns depend on and vary between individual PMS Companies.

Risk Level

• Debt PMS are considered medium-risk investments.

• This is because PMS companies use a variety of trade strategies to generate higher risk adjusted returns.

Liquidity

• Debt PMS are liquid. An investor can exit them at any time. There may be certain charges levied in case of early withdrawal of funds.

Interesting Facts

• The role of the fund manager is very important in a Portfolio Management Service. The fund manager makes all the key decisions, directly impacting the investment decisions taken and the final returns for the investors.

• Compared to debt mutual funds, Debt Portfolio Management Service is more flexible. Debt PMS have less constraints imposed on them by the regulators and their fund sizes are smaller compared to debt mutual funds. This allows them the potential to earn higher returns.

• There are various custom options available amongst Debt PMS companies for investors to select from in line with their investment goals.

Tax Implications

• Earnings received from Debt PMS are taxable.

• Interest earned by investors from Debt PMS are to be added to their total taxable income and taxes are required to be paid as per the income tax slab.

• When fund managers in a Debt PMS sell debt securities prior to maturity, the difference between the Sale Amount and Purchase Amount is typically called “Capital Gain” or “Capital Loss” (if sale amount is lesser than the purchase amount).

• The tax that the investor must pay on Capital Gain is –
• Situation 1 – If the debt securities are sold within a period of 2 years from investment, the Capital Gains earned (called Short Term Capital Gains) are to be added to the taxable income of the investor and taxes are required to be paid based on the applicable income slab.
• Situation 2 - If the debt securities are sold after a period of 2 years from investment, the Capital Gains earned (called Long Term Capital Gains) are taxed at 12.5% on the gains.

• There is no tax in case of “Capital Loss”.

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