PMS versus DIY Investing

Individuals today have multiple options for investment in India and abroad. These would include equities, commodities, real estate, bank deposits, government securities and commercial papers, among others. But allocation and timing of these investment are key to growing wealth. For these, a person can choose to manage own portfolio or do-it-yourself kind of investing or take professional help through Portfolio Management. Both approaches come with their own set of advantages and challenges, and choosing between them largely depends on your financial goals, risk appetite, time, and expertise. 
 

What is PMS? 

A Portfolio Management Service (PMS) is a specialized financial service where seasoned professionals design equity-focused portfolios aimed at maximizing returns. Backed by a skilled team with deep expertise in finance, corporate strategies, market trends, and both local and global macroeconomic factors, they carefully select assets that align with your investment goals. This personalized approach takes into account your risk tolerance and future financial objectives, ensuring a tailored investment strategy that works to your advantage.
 

What are the different types of PMS? 

There are typically three kinds of PMS that one can choose from:

Discretionary: This is a hands-off approach. You set your goals and risk tolerance, and the manager makes all buying and selling decisions within those parameters. Ideal for investors who want a professional to handle everything.
 

Non-Discretionary: Here, the manager acts as your investment advisor. They research, analyze, and recommend investments, but the final decision to buy or sell is yours. This is a good option for investors who want guidance but retain control.
 

Advisory: This offers the most control. The manager provides investment advice and recommendations, but you execute the trades yourself through your own brokerage account. This suits experienced investors seeking professional insights.

What is DIY Investing?

When an investor decides to keep full control of their own investment, without any direct external advise it is called DIY or do-it-yourself investing, as the name suggests. DIY investors typically handle everything on their own, from researching stocks and mutual funds to managing asset allocation and keeping track of market movements. DIY investing requires significant time, research, and an understanding of financial markets.

Key Differences Between PMS and DIY Investing

1. Expertise and Knowledge

PMS: When you opt for PMS, you are entrusting your investments to a team of professionals with years of experience and in-depth knowledge of the markets. Portfolio managers analyse market trends, company fundamentals, and macroeconomic factors to make informed investment decisions on your behalf. They also have access to institutional-level research and analytics tools, which may not be available to individual investors.
 

DIY: DIY investing requires you to have a solid understanding of the stock market, bonds, mutual funds, and other investment vehicles. You are responsible for researching and analyzing your investment choices. For seasoned investors with sufficient time and knowledge, DIY investing can be rewarding. However, for beginners or individuals with limited knowledge, it can be challenging and risky.
 

2. Customization and Flexibility

PMS: One of the biggest advantages of PMS is its personalized approach. PMS portfolios are tailored to meet the specific financial goals, risk tolerance, and preferences of individual investors. This customization is particularly valuable for HNIs, who often have complex financial needs and large portfolios that require active management.
 

DIY: DIY investing offers complete control over your portfolio. You can select the specific stocks, mutual funds, or bonds you want to invest in and can change your strategy anytime. While this flexibility is appealing to many, it can also be overwhelming, as the investor must constantly monitor and adjust their portfolio based on market conditions.
 

3. Time Commitment

PMS: Since PMS involves professional management, you don’t need to spend time monitoring markets, researching stocks, or rebalancing your portfolio. The portfolio manager takes care of everything, from strategy formulation to execution. This makes PMS ideal for busy professionals or those who lack the time to manage their investments actively.
 

DIY: DIY investing is time-intensive. You must continuously research market trends, evaluate investment options, and track the performance of your portfolio. For many investors, particularly those with full-time jobs or businesses, finding the time to manage a DIY portfolio can be difficult. Mistakes or missed opportunities can occur due to a lack of time and attention.
 

4. Costs and Fees

PMS: PMS typically comes with higher fees compared to mutual funds or DIY investing. Portfolio managers charge management fees, which can range from 1-2% of the assets under management, along with performance fees in some cases. These costs are justified by the personalized service, research capabilities, and expertise provided by the PMS provider. However, investors should carefully evaluate whether the returns generated by the PMS justify the fees.
 

DIY: DIY investing is often seen as a cost-effective alternative. You don’t pay any management fees, and your expenses are limited to brokerage charges, taxes, and other transactional costs. For investors who are comfortable managing their own portfolios, DIY can be a more affordable option. However, poor investment choices or missed opportunities due to lack of expertise can sometimes outweigh the cost savings.
 

5. Risk Management 

PMS: Professional portfolio managers actively manage risk in PMS portfolios. They employ various risk management strategies such as diversification, asset allocation, and hedging to mitigate potential losses. The manager also keeps an eye on global and domestic market developments, adjusting the portfolio accordingly to minimize risk.
 

DIY: Risk management in DIY investing is entirely up to the investor. DIY investors must ensure that their portfolios are well-diversified and regularly rebalanced to avoid overexposure to specific sectors or asset classes. Lack of experience or knowledge in risk management can result in greater exposure to market volatility, which can lead to significant losses.
 

When Should You Choose PMS?

PMS is ideal for investors who:

• Have significant investable assets 
• Want personalized investment strategies tailored to their unique financial goals.
• Prefer professional management and access to sophisticated research and analysis.
• Are comfortable paying higher fees in exchange for active portfolio management and potentially higher returns.
   

When Should You Choose DIY Investing?

DIY investing is suitable for investors who:

• Have a strong understanding of financial markets and investment products.
• Enjoy researching and managing their own investments.
• Have smaller portfolios and want to minimize management fees.
• Prefer full control over their investment decisions and strategies.
• Are willing to dedicate time to monitoring, analyzing, and rebalancing their portfolios regularly.
   

The Indian Context: PMS vs. DIY

In India, both PMS and DIY investing have gained popularity in recent years. With the rise of fintech platforms and easy access to information, many investors are taking the DIY route to manage their portfolios. Online trading platforms, robo-advisors, and investment apps have made it easier than ever to invest in stocks, mutual funds, and other asset classes.

However, for HNIs and seasoned investors with substantial portfolios, PMS continues to be a preferred option. India’s PMS industry has grown significantly, with several top-tier PMS providers offering specialized investment strategies across equity, debt, and alternative assets. For investors seeking global diversification or sector-specific expertise, PMS offers the advantage of professional management, personalized strategies, and active risk management.
 

Conclusion: Which One is Right for You?

The choice between PMS and DIY investing ultimately depends on your individual circumstances, including your financial goals, time availability, investment knowledge, and risk tolerance. For investors with substantial portfolios and complex financial needs, PMS provides the expertise, personalized service, and convenience needed to achieve long-term wealth growth. On the other hand, DIY investing can be a cost-effective solution for individuals who have the knowledge and time to manage their own portfolios.

Regardless of which option you choose, it's important to continually educate yourself about investment strategies and market trends to make informed decisions and achieve your financial objectives.