What is Portfolio Management Services for NRIs?

PMS (Portfolio Management Service) for NRIs is a personalised investment service regulated by SEBI. It is a professional service where dedicated portfolio managers handle a tailored investment portfolio on your behalf. It is ideal for high-net-worth NRIs, offering them a refined and personalized approach to wealth management

An NRI can invest in these funds through their NRE or NRO bank accounts. PMS offers a level of customisation, professional supervision, and transparency unlike mutual funds and traditional investment products that collect money from many investors.

What is PMS for NRIs?

PMS stands for portfolio management service, which is an investment service where qualified portfolio managers handle an individual's or institution's investments. They consider the client's financial goals, investment horizon, and risk tolerance to create a personalized investment strategy

There are a lot of NRI investment options. However, unlike mutual funds and traditional investing options, PMS offers a higher degree of tailored attention and expertise to individual investors. These funds are regulated by SEBI and are primarily for high-net-worth individuals. There is a minimum investment limit of Rs. 50 lakhs in PMS and an NRI can use their NRE or NRO accounts to invest in these funds.

How PMS Works for NRIs?

Portfolio Management Service for NRIs (Non-Resident Indians) provides a professional and tailored approach to managing their investments in India. Through this service, expereince fund managers in India actively manage an NRI's portfolio across equities, debt, or hybrid portfolios

NRIs can invest through their NRE (Non-Resident External) or NRO (Non-Resident Ordinary) after completing mandatory KYC (Know Your Customer), FATCA, and RBI compliance requirements. The professionals customise the NRIs' portfolio depending on their risk appetite, investment horizon, and financial goals, with securities held in the investor's own demat account.

PMS operations, taxation, and reporting are executed according to the guidelines of SEBI and FEMA that ensure regulatory compliance and transparency.

What are the Types of PMS Available for NRIs?

An NRI portfolio management firm offers various types of services depending on the level of control you wish to have over your investments. Here are the types of PMS that are available for NRIS:

Advisory PMS

With advisory PMS, the manager's role is strictly advisory, providing recommendations and advice for investment. The NRI investor retains full control and responsibility for analyzing, approving, and executing the trades and managing the portfolio.

Suitable for: Advisory PMS is ideal for investors who are experienced and seek professional advice, but choose to have full control over their portfolio's transactions and administration.

Discretionary PMS

In discretionary PMS, the portfolio manager has the overall responsibility to make investment decisions on your behalf based on your financial goals and risk profile. Since it offers an entirely hands-off approach, it is one of the most well-known types of PMS for NRIs. It enables the expert to react to market changes quickly without asking for approval for every transaction.

Suitable for: It is ideal for NRIs who prefer a hands-off approach and don't have the time or expertise to actively manage their investments. Additionally, it is for those NRIs who want a professional manager to take full responsibility for making all the decisions for better and timely execution.

Non-Discretionary PMS

In non-discretionary PMS, the manager acts like an advisor, conducting research and providing recommendations about potential investment opportunities. However, the investor (you) will make the final decision. Before executing any trade, the manager has to get it approved by you

Suitable for: It is ideal for NRIs who have the time and expertise to stay actively involved in their investment decisions. 

What are the Benefits of PMS for NRIs?

An NRI can get a lot of benefits after investing in a SEBI-registered PMS, particularly those living abroad. Here are some of the benefits of investing in a PMS (Portfolio Management Service):

• Higher Return Potential: PMS uses concentrated and active strategies to potentially generate alpha and offer returns that are higher than the standard benchmarks.
• Customised Portfolios: Unlike mutual funds, PMSs are highly customisable investment solutions. You can get your portfolio tailored as per your risk tolerance, long-term financial goals, and return expectations.
• Beneficial for NRIs: PMS offers an easy and hassle-free way for NRIs to manage their Indian equity investments without monitoring the market daily from a different time zone.
• Control and Transparency: It ensures complete transparency as you have a personal Demat Account. So, you can receive regular and detailed reports regarding every transaction and the portfolio's performance.
• Expert Handled: You get access to the expertise of professional fund managers and research analysts who actively keep track of the markets on your behalf.

How Can NRIs Invest in PMS in India?

The process to invest in PMS as an NRI includes regulatory approvals, setting up an account, and documentation. Consider the following steps to understand this better:

Step 1: Eligibility Requirement

Any Indian citizen who is staying abroad and has an NRE/NRO account qualifies to invest in PMS.

Step 2: Regulatory Route

Investments made in the PMS are routed either through the PIS (Portfolio Investment Scheme) or through an NRO account, based on the type of income repatriation needed.

Step 3: Documents Required

An NRI must submit the following documents to adhere to the rules of SEBI and RBI:

• PAN card
• FEMA declarations
• Overseas address proof
• Passport and visa/OCI card
• NRE/NRO bank account details

Step 4: Minimum Investment Requirement

You need to invest a minimum of Rs. 50 lakh in PMS as mandated by the SEBI guidelines.

What is the Difference Between PMS vs. Mutual Funds for NRIs?

You might be wondering why you should choose PMS over mutual funds. The table below lists the differences between PMS vs mutual fund so that you can choose one that's best for you:

How is PMS Taxed for NRIs?

For NRIs investing in India, considering the tax implications is one of the most important factors for effective planning and tax compliance. The taxation on PMS for NRI depends on the nature of gains and the type of account used. Here is how taxation of PMS works:

Short-Term Capital Gains (STCG)

• Gains from listed equity held for less than 12 months are taxed at a rate of 15% along with surcharge and cess.
• Gains from unlisted bonds/debt held for less than 36 months are taxed as per your income tax slab rate.

Long-Term Capital Gains (LTCG)

• Gains acquired on listed equity held for more than 12 months are taxed at a rate of 10% on gains exceeding the Rs. 1 lakh limit.
• Gains from unlisted bonds/debt held for more than 36 months are taxed at a rate of 20% with indexation benefit.

Earlier, Long-Term capital gains on equities were 10%, and this rate continues to apply under the current tax provisions.

Dividend and Interest Income

• Dividend income is taxed at your applicable slab rate.
• If the dividend amount exceeds Rs. 5,000 in a financial year, a TDS of 20% (plus applicable surcharge and cess).
• Interest income is taxed under the "Income from Other Sources" at your slab rate.

What are the Risks Involved with Investing in PMS?

Although investing in PMS carries several benefits, you need to be aware of the risks that come along with it before investing. Below are the risks that you must keep in mind:

• Currency Risk: For NRIs, their overall returns may be impacted due to the shift in the exchange rate between the Indian Rupee and their local currency.
• Manager Risk: The skills and decision-making power of the portfolio manager highly impact the performance of your portfolio.
• Liquidity Risk: Some PMS strategies may invest in securities that may not be easy to sell. This could incur a challenge if you wish to liquidate your portfolio quickly.
• Market Risk: There is no guarantee of returns, and your portfolio's value is subject to market fluctuations.

How to Choose the Best PMS for NRIs?

Choosing the right Portfolio Management Service provider is important. Consider the following factors while making the choice:

• Verify the Track Record: Check the PMS provider's long-term performance over the various strategies they executed across different market cycles. 
• Understand the Investment Principles: Make sure their investment approach matches your personal risk appetite, such as value, growth, or a mix. 
• Fee Structure Comparison: The fees for PMS can be complex. So, ensure to compare the management fees, performance fees, and other charges across different providers.
• Verify SEBI Registration: Always ensure to choose a SEBI-registered PMS to safeguard your investment from fraudulent activities. 

Final Thoughts

PMS in India offers a structured, transparent, and professional way for NRIs for wealth growth. It offers a customized investment solution that matches their unique financial situation and goals. Ultimately, investing in PMS as an NRI comes with several benefits, like access to professional management with local expertise, personalised investment advice, transparency and control, access to high-growth opportunities, etc. 

Moreover, to get expert guidance on investing in PMS as an NRI in India, contact Savetaxs. Our team of experts can provide you with advice on NRI investment and assist you with complex procedures. They will provide expert recommendations with assured transparency, ensuring guaranteed satisfaction. Contact us right away as our team is actively working 24*7 across all time zones.