Retired with 1 cr, is PMS good for generating money for my son's future?

Ans: Hello Parry and thanks for writing to me. If you are investing in equity as an asset class whether it is thru Portfolio Management Services or Equity Mutual Funds, you will face volatility. Equity is a long term investment and with your retirement horizon in 15 years, you can reap the benefits of compounding.

The minimum investment ticket size in a PMS is Rs.50 Lakh. If you choose to go with a PMS, you will have invest your entire corpus of Rs.50 lakh with only one portfolio management company. While many PMS companies have given outstanding returns, you will have to be able to select the right PMS for you.

If you choose to go with mutual funds, you can plan to invest in tranches and have flexibility to invest across different schemes and asset types to create a diversified portfolio that can be rebalanced over time to ensure you are on track to achieve your retirement goal.

You should consider taking advise from a certified financial advisor who can help you select the right PMS or mutual funds.

Ans: Dear Sarvotham
PMS might seem alluring but my experience has been that the performance of most of them is patchy and quite irregular. A well performing PMS is generally not able to repeat the performance even the next year.

The reasons for the above are not very far to seek. PMS’ generally keep very concentrated portfolios and that too of mid and small stocks, and hence, the risks taken are very high. If the risk taken plays out, the PMS performs in that year. With your available money, you will have to invest in one single PMS since the minimum investment allowed is 50 Lakhs.

On the other hand, equity mutual funds typically have 40-60 stocks in portfolio and since there is no minimum investment limit like in PMS, you can have a well diversified portfolio which will reduce your risks and also have a balance.

My suggestion is to search out a good financial advisor and take his/her advice to manage the portfolio. That way you would you would not have to manage the portfolio yourself which you are finding difficult to do, costs will be much lower as the PMS typically charge much higher fees and you would also have a control on your portfolio which you will not have in PMS.

By the way, 61 years is not such a high age… my age is the same as yours!! 😊

Ans: First of all, you have a good portfolio but it is very risky and a little over-diversified. You have invested in 3 funds for each category which is more than I would recommend to anybody.

Regarding your query on investment options to accumulate the amount for Children’s education need, both - mutual funds and PMS services - can be good option for investing your money. However, there are some key differences between the two that you should consider before making a decision.
• Cost: Mutual funds are typically less expensive than PMS services since mutual funds have a lower expense ratio, which is the fee that is charged to investors to cover the costs of managing the fund. However, PMS have a heterogeneous charge structure that can vary on the basis of performance, or fixed charge structure irrespective of performance, that may or may not justify/align to your requirement/objective.
• Incidence of Tax – In Mutual Funds, all the transactions that the fund manager does - whether he buys or sells any stock, are not liable to be taxed to you. It doesn't affect your tax liability. You are liable to capital gains tax only when you actually redeem your money invested in the fund. But in the case of PMS, all transactions done by the fund manager will be treated as your own transactions and will be liable to capital gains tax.
• Flexibility and liquidity: Mutual funds offer more flexibility than PMS services. This is because mutual funds can be bought and sold easily and generally carry no lock in. PMS services might have lock-in periods and exit loads if exited before 1 - 2 years depending on the fund.
You could invest your money in a low-cost, diversified mutual fund that is designed for long-term growth. This would provide you with the potential for growth over time, while still minimizing your risk. Risk management is equally important when it comes to critical life goals.

There are various mutual funds available for educational reasons, such as the Children's Gift Fund (Mutual Fund) and even a well-diversified regular MF portfolio. You can use those to meet your long-term educational objectives.

Disclaimer:
• I have just no idea about your age, future financial goals, your risk profile, other investments and whether you would have the nerves to not get unduly perturbed if stock markets go temporarily down.
• Hence, please note that I am answering your question in absolute isolation to other parameters which should definitely be considered when answering a question of this type.
• I recommend you to also consult a good financial advisor who would look at your complete profile in totality before you act on this advice given by me.