Can PMS plans make you rich?

If you had invested Rs 25 lakh in Porinju Veliyath's Equity Intel ligence PMS in 2012, your invest ment would be worth around `1.2 crore today . The PMS scheme has given 36.8% annualised returns in the past 5 years, beating the benchmark Nifty by 25 percentage points.However, experts feel small investors should stay away from portfolio management services (PMS). The large ticket size (the minimum investment is `25 lakh) is a deterrent. Further, most PMS schemes have only matched the performance of the best performing equity diversified funds.The PMS structure and investing philosophy may not suit the risk appetite of the average investor. “PMS is mainly for seasoned HNIs who understand direct equity well,“ says Tarun Birani, Founder & CEO, TBNG Capital Advisors. Small investors find SIP investments through mutual funds to be more rewarding.PMS managers themselves say that investors should not enter this space unless they are ready for the risks. Unlike mutual funds, PMS can levy higher charges, though competition keep the charges within a reasonable band. PMS charges can be a fixed fees or a profit-sharing arrangement based on fund performance.Porinju Veliyath's Equity Intelligence, for instance, charges a fixed anagement fee of 2% per year, and additional performance fees of 10% of the returns above 10% per annum.Experts say that since the PMS manager has his skin in the game in the profit-sharing model, it helps generate alpha. There is also an exit load if you withdraw early . According to portfolio managers, higher charges are incurred only if the portfolio is churned too often. “We typically hold stocks for 4-5 years and our churn rate is only 15%, compared to 100% for mutual funds,“ says Sonthalia. However, some experts say that PMS should not be compared with mutual funds at all, because the two are very different.