The Indian alternative industry, although relatively nascent, is treading a similar trajectory. Over the past five years, the AUM under Alternative Asset Funds (AIFs) have witnessed a CAGR of 26% to reach Rs 13.74 lakh crore, as of June 2023. Further, the total AUM of the Portfolio Management Services (PMS) industry in India has nearly tripled in the last seven years, ascending from Rs 10.45 lakh crore in March 2016 to nearly Rs 30 lakh crore in March 2023. This growth rate is more than double that of the Mutual Fund (MF) industry.
More importantly, the number of investors availing the services of PMS firms—though a fraction of MF investors—has also witnessed stellar growth increasing from 52,288 in FY16 to nearly 144,000 in FY23.
This substantial growth attests to both the vibrancy of the Indian economy and the appeal of alternative investments and PMS as a medium for long-term wealth creation in the Indian market.
Anil Londhe, Mutual fund Distributor.
PMS funds generating alpha
PMS offer a personalised investment solution where experienced portfolio managers handle investments on behalf of clients. As a vehicle, PMS is highly transparent and gives investors exposure to high conviction listed equity opportunities. In 2023, an impressive 87% of PMS schemes outperformed benchmark indices like Nifty 50 and Nifty 500. This showcases their ability to generate alpha – delivering higher returns over chosen benchmarks. The average returns of PMS schemes stood at 35.3%, significantly surpassing the benchmark returns of 20.1%.
PMS platforms owe their success to creating special investment plans that fit each person’s needs and their risk appetite. PMS managers usually focus on in-depth equity research and create concentrated portfolios, compared to MFs, that comprise high conviction ideas. Due to this exposure, these funds are often able to generate robust long-term returns. This becomes particularly relevant in the backdrop of the prevailing economic landscape. The Indian economy is currently on a firm ground and is engendering opportunities for the private and public sector. Various themes are emerging which can potentially become strong future trends. However, risks continue to persist, making stock selection a key differentiator. This means that unique selection based exposure to specific themes and ideas could help investors participate in the India growth story and potentially generate robust long-term returns. Such an exposure can be gained through PMS.
Furthermore, the transparent mandate imposed on PMS providers underscores a commitment to openness with detailed disclosures of transactions, costs, and portfolio performance, thereby instilling a sense of trust and confidence. PMS platforms also use technology extensively to make things easy for clients, offering online access and tools that help manage portfolios efficiently. With a solid foundation of expertise and research, PMS companies provide valuable insights that help diversify portfolios effectively.
In a changing financial world, PMS isn’t just a service; it’s a helpful partner for investors, guiding them with confidence through the complexities of the market. While PMS may entail a certain fee, its distinctive features including consistent outperformance, customisation, and transparency make it an appealing choice for investors with substantial portfolios seeking personalised and sophisticated investment strategies. At the same time, it is important to underscore that the concentrated nature of many PMS schemes and exposure to direct equity can bring with it higher risk as well. Thus, it becomes imperative for investors to be aware of the risk and make investment decisions that are well-aligned with their overall asset allocation strategies.
As the investment landscape continues to evolve, delving into the realm of alternative investment emerges as a prudent strategy for those desiring diversification and the potential for higher returns.
Note: This is a partnered post authored by Anil Londhe, Mutual fund Distributor.
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