What does Portfolio Management Services (PMS) mean?
  • PMS is a structure introduced by Indian market regulator SEBI that involves leading banks, custodians and depository participant (demat) ensuring the client funds and stock holdings are perfectly safe.
  • PMS Manager deploys funds as per mandate and takes care of end-to-end execution implying investor doesn’t have to bother about fundamental research, trade execution and monitoring.
Stalwart PMS Vs Mutual Fund (MF)?

Pros of PMS Structure

  1. Under Stalwart PMS, the shares are held in client’s own demat account under his/her name & PAN as against getting units of a pooled MF. This also offers full transparency & access to manager.
  2. Stalwart PMS is customized for each investor for initial capital deployment as against NAV (model portfolio) of MFs. We only buy stocks which are in the buy-zone (calculated conservatively by us) and keep rest in liquid funds waiting for right opportunities. Further, we don’t invest in net-negative-for-society businesses like Alcohol, Tobacco and Gambling.
  3. Stalwart PMS’ majority fee is linked to returns as against fully fixed fee of MF irrespective of their actual performance.
  4. Stalwart PMS’ small size enables us to look at even niche small- & mid-cap companies which MFs cannot due to absence of sufficient volumes considering their large AUM. We can also concentrate more in higher conviction ideas.
  5. Due to extremely large size, majority MFs have been unable to generate returns higher than Index over the last 5-7 years and with continuous inflows in MFs, the challenge is getting bigger.
  6. During market sell-offs, in order to meet the redemptions MFs are often forced to sell their most liquid & best performing companies first, leaving behind a larger share of less attractive businesses for remaining unit holders. In case of PMS redemption, all the stocks held by that specific client are either liquidated or transfered to his/her personal demat.

Pros of MF Structure

  1. MFs don’t pay tax everytime a stock is sold, rather the tax is delayed until the unit holder redeems the fund. Whereas in case of PMS, the capital gains tax has to be paid every year for booked profit (exactly similar to individuals investing in their own demat accounts). Important to note that you delay tax in a Mutual Fund, you don’t escape it. In case of Stalwart PMS, we invest for long-term and the churning is limited (<20%) minimizing the impact of this timing difference to negligible.
  2. MFs allow ticket size as small as Rs 500 which can be added on a monthly basis via SIP. Whereas, the minimum ticket size for PMS is Rs 50 lacs which makes it suitable only for HNIs. Stalwart PMS also allows SIP/incremental addition of as low as Rs 5 lacs.
Stalwart PMS Vs Do-it-yourself?

In case of investments by oneself, an individual transfer funds from one’s bank account to his/her broking account to buy shares which are then held in one’s demat account.  For example, lets say Mr. Ramesh move funds from his HDFC Bank account to his HDFC Securities account to buy Colgate shares which are then credited to his NSDL account (demat) where shares are held as long as they are not sold. All the accounts are held in Ramesh’s own name and reflects under his PAN.

In case of a PMS, it is different in the following way:

Mr. Ramesh would transfer funds from his existing HDFC Bank account to PMS’ Bank Account (Pooled). The PMS will then buy shares via PMS’ broking account and transfer the securities to Ramesh’s NSDL account (newly opened demat under PMS) where it will be held under his own name and PAN.

So, the first two steps happen at the fund level while the third and most important continues to happen at individual level.

Is PMS considered safe? Is it popular among Indian Investors?

It is for this reason that the total assets managed under PMS schemes have grown to Rs 2,37,789 Crores (2.38 lac crore) as on 31st May 2023 implying this has become the preferred vehicle for large investors (with 50+ lacs of capital).

While the PMS regulations were first brought out by SEBI in 1992, over the years these regulations have become extremely strict and any wrongdoing that can hurt investors is completely mitigated – whether willingly or by negligence of any stakeholders. 

What is the role of a custodian in PMS? Who is Custodian for Stalwart PMS?
  • Elimination of Banking Risk: The Fund’s bank account is solely managed & operated by a SEBI registered custodian. This comes with highest level of security as there is no cheque book, ATM card or Demat Instruction Slip (DIS) issued by Custodian to either PMS Manager or the account holder (client).
  • Elimination of Broker Risk: The settlement process is such that when the Fund buy stocks, the funds get debited from the bank account and are paid to the exchange directly by Custodian (& not to the broker, unlike the way it happens in retail transactions) and securities are credited to the client’s demat account directly from the exchange on pay-out day (& not routed through the broker unlike a retail transaction). Brokerage is paid separately to the broker.

Stalwart PMS has appointed Axis Bank as the Custodian. It is the 3rd largest private sector bank in India.

What is the minimum allowed investment in PMS?

As per SEBI rules, Rs 50 lacs is the minimum allowed investment. Incremental additions (SIP – systematic investment plan) can be in smaller denominations as well.

Existing stock holdings via demat transfer are NOT accepted. In this case, you may please liquidate them and use the proceeds to open a PMS account.

What all new accounts would be opened for me to invest with Stalwart PMS?

Bank – No

Broking – No

Demat – Yes

Stalwart PMS follows a pooled structure wherein each investor partner doesn’t need to open separate bank and broking accounts, rather only a demat account needs to be opened where the stocks will be held. In the beginning, the capital will be transferred to PMS’ existing bank account from where it will be deployed in stocks and transferred to your individual demat account.

What kind of paperwork is required and associated timelines to get started?

Until recently, signing up for a PMS was no different that registering a real estate – it involved a ton of paper work with 50-80 signatures & 2-4 weeks of time. 

Fortunately, the latest amendment to PMS regulations have enabled digital onboarding. We value the time of our partners and have accordingly invested a significant amount of time & resources to ensure the onboarding experience is smooth & hassle free.

For resident individuals who are KYC compliant, the entire flow is digital and can be completed within ~2 working days:

Step 1Fill the Suitability & Risk Questionnaire. (5-min) 
Step 2Share basic details like PAN, Nominee etc. (2-min)
Step 3We will prepare & fill all the documents – Demat Form, Agreement, Power of Attorney etc. (1 working day)
Step 4You will receive an email with the link for reviewing & e-signing (Aadhar OTP + Video)
Step 5PMS Account will be opened in 1-2 working day(s). 

The onboarding process for NRI & Non-Individual (Corporate, LLP & HUF) is still offline.

Can an NRI/OCI open PMS with Stalwart & what does it involve? 

Yes, an NRI/OCI can open a PMS account with us.

Number of New Accounts

As per prevailing regulatory guidelines, we will open the following accounts for you:

  1. Open a new bank account with Axis Bank 
  2. Open a new demat account with Axis Bank
  3. Open a new trading account with B&K
  4. Open a PIS, if you don’t have one with Axis Bank.

Document Collection

  • The document pick-up & signatures can be done when the client is visiting India, our executive will visit the client’s Indian residence to collect documents.
  • For NRIs residing in Dubai & Abu Dabhi, we can arrange a home pick up of documents.
  • For NRIs in other geographies, they can courier notarised documents to our Delhi office.

Bank Account – NRO (Non-Repatriable) Vs NRE (Repatriable)

  • NRO – Clients can have any number of NRO accounts and have PIS with multiple banks without any restrictions from RBI.
  • NRE – For an NRE account, an NRI can have PIS with only one bank. If an NRI has an existing PIS with any bank/broker other than Axis Bank, then first this has to be closed and we will open a new one with Axis Bank.
  • If NRE-PIS is with Axis Bank, Stalwart PMS can be opened under the same PIS (Extension).

Flow of Funds

  • In the beginning, NRI client transfers the funds to their new bank account from their existing bank account.
  • When the shares are bought, this new bank account is debited.
  • The shares are then credited to the client’s demat account.
  • When shares are sold, the funds are credited back to this new bank account.
  • At the time of redemption, the funds are credited back to the client’s source account.

Modus Operandi – Power of Attorney

  • All the accounts will be held exclusively under the client’s name & PAN.
  • Being the custodian, only Axis Bank can operate these accounts, however, buy/sell instructions are issued by Stalwart PMS under power of attorney.
  • The client will get access to the dashboard via a unique Login ID to track portfolio as well as fetch on-demand reports.
  • Besides, clients will also get monthly, quarterly & annual audited reports covering the latest holdings, transactions, fees, capital gains, etc.
Is there any entry load, lock-in or exit load for withdrawal of funds?

There is no entry load, lock-in, or exit load for investing in Stalwart PMS. It is completely at the investor’s discretion to withdraw funds at any time without any added penalty.

What is the recommended investment horizon for suitability of the PMS?

Ideally, five years; longer the better.

What is the Investment Approach for Stalwart PMS – Wealth Guardian Fund?

At Stalwart Advisors, we offer one ‘Investment Approach’: Growth at Reasonable Price (GARP) via our one and only fund ‘Wealth Guardian Fund’. Majority of the portfolio will be invested in Consistent Compounders i.e. companies meeting the following criteria:

  1. Track Record
  2. Predictable Growth
  3. Robust Balance Sheet
  4. Sound Corporate Governance
  5. Trading at Reasonable to Fair Valuation

Opportunistically, up to a third of the portfolio would be invested in Special Opportunities covering the following: 

  1. New Promoter/Management
  2. De-merger (Spin-offs)
  3. Mean Reversion (Cyclicals)
  4. Turnaround
  5. Variant Perception   

Investments would be made primarily in listed equities of roughly 20 Businesses (stocks) to create a well-diversified portfolio spread across sectors & market capitalisation.

In a situation where we do not find sufficiently attractive opportunities, the excess funds would be temporarily invested in money market / liquid mutual funds.

The Portfolio is benchmarked against the BSE-500 TRI, which is a reasonable representation of the top 500 companies in India and the most actively traded companies.

What is the fee charged by Stalwart PMS?

The fee charged by Stalwart Investment Advisors comes with a certain underlying philosophy – we deserve to earn only once our partners have earned. Keeping this in mind, the fixed fee is kept at a nominal 0.50% of funds per annum, just to cover the account management costs. The comparable fixed fee in Mutual Funds or other PMSs is 1-2%.

Only when we meet our stated objective of earning portfolio returns above 7% (the hurdle rate), a performance fee of 20% on excess returns (above 7%) would accrue.

While calculating performance fee, we follow the three best practices keeping in mind the interest of our partners: 1). Hurdle rate compounding on the initial investment (even in down years), 2). High water-mark & 3). On net returns after adjusting for all expenses.

Further, there is no lock-in or exit load for withdrawals.

Stalwart Advisors already offers research services, what triggered addition of PMS?

Since 2014, Stalwart Advisors has been offering independent equity research service to help do-it-yourself investors in exchange for a nominal fee. While we supply distilled, sensible and actionable research, our subscribers still need to put in a fair bit of time and effort to absorb the research, execute the advice & monitor it for rebalancing etc.

Some subscribers, especially professionals and entrepreneurs who are too occupied to follow our research reports and timely execute of the suggested trades, have been suggesting us to also offer a product which is a complete solution taking care of end-to-end execution. 

The same advice/action can deliver far better outcome if executed timely and diligently. The overall risk management can also be more effective. For instance, we deployed all our surplus cash in March 2020 when fear & panic was at peak. This turned out to be a major contributor to our portfolio returns, however some subscribers later confessed that they found the advice to be counter-intuitive so did not follow it, as they were scared or waiting for markets to fall more.

What has been the performance of Stalwart PMS?

The PMS is newly launched and its monthly performance can be tracked here.

However, Stalwart Advisors has been running Independent Equity Research (Stock Advisory) since November 2014 which has generated an XIRR of 23.5%* significantly outperforming the markets.

This period coincided with multiple bull and bear markets, and extreme events like Demonetisation, GST rollout, COVID-19 pandemic & war among others, helping the team gain valuable experience in managing volatility and behavioural finance.

*As on 31st March 2023. Audited by Independent Agency. Also, Verified via MProfit. Excluding Dividends. Exc. Fee & Expenses.

Note: This section is for transparently communicating the factual information and should not be seen as advertisement or promotion.

Where can I read more about the Wealth Guardian Fund?

Following is the PMS Presentation that covers crucial information about the Firm, Team & Wealth Guardian Fund: https://pms.stalwartvalue.com/pms-deck