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Portfolio Management Services (PMS) कैसे काम करती है in India? Investing | Abhishek Kar - YouTube
Channel: Abhishek Kar
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PMS Service or Portfolio Management Service
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Has become a pudding in today's time
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Because
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If you go to Telegram or Twitter, every trader is running PMS Service in today's time
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You go to them & they will give you service
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It has become as easy as the lyrics of your today's Bollywood songs
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Watch yourself dance, dance, dance, dance, you have to say "dance" 18 times
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"Dance my queen", add queen in the end & your song is done, so simple is that
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Then new versions will come like,
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Take a yawn queen,
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Sit on top of the crocodile queen,
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Eat vegetable of gatty queen, etc.
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So as easy as it is to make lyrics in your Bollywood industry,
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In the same way, in today's time, it is easy to run a PMS Service
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You will find in street corners that they are managing PMS @2 lakh rupee
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It reaches the limit, when with capital of rs.10000, you can become a client of PMS
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But here, what is PMS, what is its concept, what is Portfolio Management Service
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What are the exact rules that are laid down by the regulators
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What is the advantage of the it, so we really need PMS Service
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How you can pick the best PMS Service, no one talks about it
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So, in today's video we will discuss
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& before we will start this video,
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Let me give a quick shout out to our today’s video partner, which is "Ticker Tape"
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That helps me in easily understanding the market segments, that’s awesome
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You can also make your analysis pro
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By downloading "Ticker Tape", from the link in the description box,
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So PMS means Portfolio Management Service
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First of all you have to understand, that this whole structure of PMS
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It is not made for normal retail, it is meant for HNI means High Net worth Individual
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In our country, the minimum amount you can invest in AMS is ₹ 50,00,000
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It was ₹ 25,00,000 two years ago
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When this concept came in our country it was just 5 lakh but slowly with time
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As people net worth increased, so its limit also increased
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What is the PM license, can anyone get it?
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Then I give you the answer that the answer is no, not everyone gets the PMS's license,
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It has some strict regulations,
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For example your personal net worth should be at least above ₹2 crore
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Should have relevant experience of Industries
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And should have some qualifications in the team
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Then thinking that,
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If your stock picking skill is good, so SEBI will give you licence for running PMS
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This is wrong,
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You will be surprised to know
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That the people who are running PMS on Telegram, a lot of times,
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They don’t even have enough money to fill petrol in their Active
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So a formal PMS, & an informal way of management
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Which runs in our country, what would be the difference, let’s try to understand that?
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First because PMS is registered under SEBI, so there is accountability
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If you face any problem on any given day, then you can also complain to SEBI
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That brother, here I have took the service of this PMS, & it is registered with you
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This is what happened with me, now check
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Whereas,
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An informal management, when you do on personal terms, in it is not possible
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Second PMS Managers have to keep a record of everything, of every transaction
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That they are doing in clients account
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They have to take care of every investment
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In fact, from investment thesis, they had to record everything
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Whereas the one who informally manages money, on the basis of behaviour
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As no one is monitoring them, so all these things are not necessary for them
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Next SEBI has given these strict guidelines that,
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Listen carefully, that every fund manager has to take power of attorney from client
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That is, before punching the trade, they had to take permission by making call
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That’s why a lot of PMS Manager has found a new trick, they found a new way
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Listen to it carefully,
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If you invest in any mutual fund,
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Then simply you had to pay money to a AMS i.e. asset management company
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Like HDFC AMC, Axis AMC, whatever,
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At the end of day,
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They buy the units on the basis of your NV & they come in your account
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But in PMS, PMS Managers started a new thing that,
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Let’s say you have 50 lakh rupees, & you go to any PMS,
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Then they ask you to open a separate Demat account,
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& they will ask you to open it under them
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Then they will even ask you to open a separate bank account,
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Exclusively for PMS transactions
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Now you will why to do so much mess,
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Demat is still understandable but why should we open separate bank account
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They do not want to take permission in everything
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For example, if customers old bank account is linked, then
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Then the shares that PMS Manager will buy
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Then the dividend of those will go to the customer's old account,
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Then PMS have to ask, & they have to take accountability
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Does it come in customer account or not, they had to confirm it
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GST is also another matter
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Therefore, they don’t want to get in all these troubles
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Through Power of Attorney,
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They ask you to open your own separate bank code
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The specific transaction related to PMS will be done here
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That why many PMS Managers nowadays,
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They won’t say that if you have 50 lakh then come
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A lot of PMS Manager,
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Ask you to open a separate base & take power of attorney from you
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It is hard work
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But you can do one work without hard work is you can like this video
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Because this encourages me to bring such unknown technical topics in front of you
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Now the formal set up of PMS
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It was actually, so much dark in late 90's
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At that time PMS mainly used to manage corporate accounts
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Which were mainly like banks, or things like these?
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By the way,
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You must have seen a snippet of it in Scam 1992, when Harshad Mehta talked about it
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At that time, PMS Manager used to take advantage of insider trading &
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They used to do price rigging at that time
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& they used to borrow money from bank @8%, they used to invest in share market
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Then the surplus return they get after giving interest,
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They used to extract the additional commission
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So this matter of PMS Managers, used to work in very unstructured manner
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At that time
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As i have told you that, at the time of Harshad Mehta, you might have seen
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That how banks, institution, everyone together are scamming in PMS
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But you have to understand that at that time,
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In corporate, there were more PSE's companies, i.e. Public Sector Companies
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They were involved mostly
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But after SEBI introduction, structure started getting better
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& then price rigging, got a little sluggish
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PMS who have asset over 500 crore, let’s say they have clients over 500 crore Rupees,
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So it is mandatory for them to keep a custodial
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Yes, & also these people can’t take leverage
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So if you think PMS will trade fully in derivatives the no
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That means if a PMS Manager wants to buy one lot of Nifty Future,
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So SEBI says, you can’t take in 1-1.5 lakh,
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The margin you see of 1-1.5 lakh, not that,
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You have to keep full 10 lakh rupees means 18,000*Lot size, just saying approx.
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Anyways, SEBI restricts PMS to put money in derivatives
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Only recently it allowed,
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Some minor exposure into the commodity, future that too for the purpose of hedging
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Otherwise usually SEBI restricts everyone from this kind of investment
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Now let’s come to, what are their charges, what are the standard charges
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Because people manager have their research team, analysis team,
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There workers, a lot of people, they have to pay a lot of salary, as well as rent
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So first they take a fix management fee on your total amount
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If i will talk about industrial standard then industrial standard is on the basis of 1-2%
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Apart from this there are some charges, that they try to take from you ,
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Like entry load in terms of mutual funds, so same happens here as well
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Exit load
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& in case, if you try to leave the PMS before 2-3 years, as written in agreement
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So when you try to leave in between, then you have to give then an additional cut
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You have to give them a present & you have to bear an additional cost
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Along with this, there is profit sharing, which is generally around 20-25%
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But here let me tell you an interesting concept that PMS follows
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Which we know as "Hurdle Rate"
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Now what’s that
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I won’t complex it much, i will try to explain you in simple terms that "What’s hurdle rate"
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Let’s say your PMS Manager will say that
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Till the time i won’t make 6% annual return for you,
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I will not take even a single penny from you
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My sharing will start only after 6%
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So by this, a client gets assurance that the PMS Manager will try its best
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Because if he want to make return, then he first have to reach the 6%
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So there is one more word along with this, which is Catch up
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Not ketch up but catch up
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Let’s say if PMS didn’t made any return for 2 years, and it underperformed
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So they won’t charge any sharing for those 2 years
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So in third year, when they will get profit,
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So after crossing the minimum threshold & recovery of past 2 years
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If they are able to make profit, then only they can charge sharing on that
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But not all the PMS Managers do these things
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Their situation is also worse, that
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What if they are not able to make any return, so pick up all the money as much as we can
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But yes, good PMS Manager apply these, Catch up & Hurdle Rate things, for sure
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So you should also consider this that your PMS Manager is applying it or not
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Apart from this, the additional cost like GST, Brokerage, Estate, these all are usually
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These are also passed on to client along with performance fee
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So this is the fee structure that has all these things in it
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Now the final question, if we want to put money in PMS then how should we select it
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First thing you have to understand is PMS is mainly just for high risk taking HNI's
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So let’s say if your total saving is around 50 lakh, then please don’t go in PMS
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& if anyone is asking you any amount lower than this,
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Then for sure he is not running PMS, & these are anyways very risky
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So you have to understand that
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If you have a hugs corpus, i.e. of few crores then you can think of going into PMS
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Next is you should check
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Ask your PMS Manager that
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What is your goal based risk comparison after paying the charges
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Means, if your goal is 10% on the basis of CAGR,
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Then PMS after the entire performance fee,
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It is necessary,
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Taxes etc., can it match your goals
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Next is your PMS Manager Investment philosophy is conservative or risky
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A lot of investment manager takes unnecessary risks that you should avoid
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Like there is one PMS manager from south who put all in small cap,
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& then the condition of client worsens
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Plus, if you’re PMS helps in Tax optimisation i.e. if it helps in your audited CA report
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Then it will help you out
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So friends this was all about PMS structure in India
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That i tried to explain you in very simple way
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Hope you found something new to learn
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If you like technical topics like this, then make sure you don’t skimp on the likes
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If you want more videos on PMS, AIF, then write "PMS" in comments
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So, i will try to bring more videos on this topic
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Till then Keep learning & keep growing
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