How to Choose
the Right PMS

1. Look at returns, measured properly

SEBI now requires portfolio managers to report performance on a time-weighted basis, net of fees and expenses, so that strategies can be compared fairly. Ask for these numbers, not a hand-picked model portfolio or a single client's account.

Look at returns over three, five and seven years where available. One great year tells you very little. A manager who has been through at least one full market cycle, including a sharp fall, tells you far more.

2. Compare against the right benchmark

A small-cap strategy that beat the Nifty 50 in a small-cap rally has not necessarily done anything special. SEBI requires each strategy to report against a broad benchmark suited to its category. Check which one is used and whether the strategy beat it after fees, not before.

3. See how bad the bad years were

Ask for the strategy's maximum drawdown: the largest fall from a peak to a low. A strategy that returned 22% a year but fell 45% in a crash can be harder to live with than one that returned 17% and fell 25%. Many investors sell at exactly the wrong moment because they never knew how deep a fall could be.

Look at how the manager behaved in difficult periods such as March 2020. Did they stick to their process or change direction under pressure?

4. Check consistency, not just the average

Rolling returns show how the strategy performed across every possible three-year window, not just the one that makes the best chart. A manager who beats the benchmark in most rolling periods is more dependable than one whose average is driven by a single spectacular year.

5. Understand the style and concentration

Most PMS strategies hold 15 to 30 stocks. Find out:

• Is it large cap, mid cap, small cap or multi cap?
• Is it growth, value, quality or momentum led?
• What are the top ten holdings and how much do they make up?
• How high is portfolio turnover? High turnover means more short-term capital gains tax in your hands.

None of these answers is right or wrong. What matters is that you know what you are buying and that it matches your temperament.

6. Read every line of the fee schedule

PMS fees can be fixed, performance-linked or a hybrid of both. Check:

• The fixed management fee
• The performance fee, the hurdle rate above which it applies and whether a high-water mark is used
• Exit loads, which SEBI caps at 3% in the first year, 2% in the second and 1% in the third, with no load after three years
• Custody, brokerage and other charges

Portfolio managers must also offer a direct option without distribution fees. Weigh the cost difference against the value of ongoing advice and monitoring.

7. Judge the people, not just the numbers

Ask who actually manages the money and how long they have done it at this firm. A strong track record means little if the fund manager behind it has just left. Look for a clear, written investment process, a stable team and the manager's own money invested in the strategy.

8. Check the fit with what you already own

This is the check most investors skip. If you already hold mutual funds and another PMS, a new strategy may simply buy the same twenty stocks again. You end up paying several sets of fees for the same exposure.

Before adding a PMS, we map its holdings against your existing portfolio to measure overlap. Often the best PMS for a client is not the one with the highest return, but the one that adds something their portfolio is missing. A portfolio review is the natural starting point. If you are still deciding between a PMS and other routes, read our guides on PMS vs AIF and SIF vs PMS.

Frequently asked questions

This guide is for general information only and is not investment, tax or legal advice. Investments are subject to market risk. Please read all scheme documents carefully and consult your own tax and legal advisers.