| Mutual fund managers, who have been handing out fantastic returns owing to the boom in equities are in for tough competition. Portfolio management service (PMS) schemes run by brokerages and other private financial advisors have beaten equity fund returns by a fair distance.
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| In the past one year while equity diversified funds delivered about 57 per cent on an average, PMS fund managers have done much better, with returns in excess of 60-80 per cent.
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| However, the two are not comparable as they target different segments and the products per se are not comparable. The PMS schemes are for those which are meant for high - end clients like high net worth individuals (HNI), who don’t mind playing the high risk game.
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| According to a fund manager, “PMS is all together a different ball-game. Many of these schemes outperformed mutual funds in terms of returns, but the product itself is shaped for HNI clients with a higher risk appetite. Mutual funds cannot afford to take high risks and take big exposure to companies with lower market capitalisation. But one can see that the PMS schemes of mutual funds have also generated higher returns.”
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| Returns from a PMS product are clearly dependent on the risk factors, says Shashank Khade, senior vice-president, PMS, Kotak Securities.
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| “Apart from market risks which all the mutual funds are subject to, there is concentration risk and capitalisation risk which distinguishes various products offered under the PMS division,” said Khade. Kotak Mutual offers about 5 to 6 products under its PMS division of which the Fortune portfolio has generated an annual return of above 60 per cent.
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| “One can have a portfolio of 10 stocks and also that of 40 stocks. PMS funds often invest in stocks that have low market capitalisation, there by taking a higher risk,” he added.
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| Bharat Shah, CEO, ASK Raymond James said that they have successfully beaten all the mutual funds as well as the benchmark indices, even after deducing the performance fee. “We do not believe in the dictum of high risk-returns. On the other hand, we believe that investing is all about low risk and higher return.”
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| Fortis Securities which runs three schemes, zoologically named Tortoise, Panther and Hawk generated more than 100 per cent returns on an average says Kunj B Bansal, CIO, PMS in Fortis, who was a fund manager with Reliance Mutual. “HNI clients prefer PMS to mutual fund schemes. Though there is a fair amount of risk involved, it is to be accepted that we could garner better returns from this bull market than the equity mutual funds,” he added.
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| Shahzad Madon, who handles about four equity schemes under the PMS division of Prudential ICICI Mutual Fund says that these schemes are complementary to other equity schemes of the fund house.
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| “In the PMS schemes the returns are proportional to the risk involved. All our products are differentiated from each other in the kind of risk they hold and we advice our clients to pick up the schemes in accordance with their mind set.” he said. Prudential ICICI schemes have generated above fifty per cent returns, consistently over the past five years.
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| Birla Mutual which has a dedicated set of analysts and fund managers for its PMS division has three different products which have posted about 60 per cent annualised return.
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“This is a large industry. Every player has their own space. Therefore there is no question of anybody posing a threat. But then, the returns do matter,” says an official with Birla Sunlife Mutual.
Knock Out
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In the past year, while equity funds delivered 57%, PMS funds have done better, with returns in excess of 60-80%.
PMS schemes are are meant for HNIS, who don’t mind playing the high risk game, but MFs cannot afford to take big exposure to companies with lower market cap.
Apart from market risks which all MFs are subject to, there is concentration risk and capitalisation risk which distinguishes various products offered under the PMS division. |
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