Discretionary vs Non-Discretionary Portfolio Management Services
- 5 min read
Portfolio Management Services (PMS) is a financial service offered to investors like you, where stock market experts and portfolio managers handle your securities investment through research.
As an investor, you have the option to choose from a discretionary and non-discretionary PMS. However, you must be curious to know what they mean and the key differences between discretionary vs non-discretionary portfolio management to choose your preferred PMS.
This blog uncovers the key differences between these two services and points out which one is suitable for you.
What are Portfolio Management Services?
PMS is a specialised service extended to investors like you to make your investment journey smoother. Such a service offers you a tailored solution to assist you with investments and achieve your set financial goals through trades.
This type of service provider first assesses your financial capabilities, your risk tolerance, time horizon, financial goals and other important factors. Based on this assessment, they build you an investment strategy capable of ensuring an optimised return.
Entities or agencies that offer PMS services must be SEBI-registered to maintain transparency, reduce fraud and errors. If you are an HNI, HUF, a part of a partnership firm, etc., a PMS service is suitable for your investment needs.
What are the Different Types of PMS?
Before delving into the differences between discretionary vs non-discretionary portfolio management, let us take a look at the definitions of these two types of services:
-
Discretionary PMS
A discretionary PMS is a sort of comprehensive management service to manage your portfolio. If you opt for such a service, you grant full access to your portfolio to a portfolio manager, and they will manage it on your behalf. Thus, you give them exclusive access to make investment decisions, trade executions, etc., without your explicit consent.
-
Non-Discretionary PMS
If you opt for such a service provider, the portfolio manager will help you with investment-related suggestions for good returns. However, executing trades based on that advice completely depends on you. Thus, without your consent, your portfolio manager cannot make investment decisions.
Difference Between Discretionary vs Non-Discretionary PMS
Take a look at the following table and take note of the key difference between discretionary vs non-discretionary PMS:
| Parameters | Discretionary PMS | Non-Discrationary PMS |
| Consent requirement | Your portfolio manager will make decisions regarding the purchases and sales of securities, when to rebalance your portfolio, etc. | Your portfolio manager will give you advice on investments or trades, but cannot execute trades or make adjustments without your approval. |
| Investor involvement | By choosing this service, you do not need to be involved in investment activities or worry about investments too much. | As your portfolio manager needs your consent for investment decisions, you need to be moderately involved in investment activities. |
| Suitability | If you are an investor with limited market knowledge, this service provider is suitable for you for expert-guided investment decisions. | If you have a decent knowledge of investment and have enough time managing your portfolio, this is suitable for you. |
| Change recommendations | Here, you do not need to recommend portfolio adjustments or investment strategies, as your manager has complete control. | With such a service provider, you can recommend adjustments or investment strategies as you are the final decision-maker. |
Which One to Choose Between Discretionary vs Non-Discretionary PMS?
After learning the definition and key differences of these two service providers, you might wonder which one to choose.
Both services have their inherent advantages. However, you can rely on the expertise of your manager with discretionary PMS and relax. On the other hand, with a non-discretionary PMS, you get the authority to approve or deny investment actions.
Therefore, if you prefer a hands-off approach to managing your portfolio, a discretionary PMS is suitable. Contrarily, if you have decent market knowledge and seek authority over your portfolio decisions, opt for a non-discretionary PMS.
Conclusion
Learning the differences between discretionary vs non-discretionary portfolio management is crucial for you to manage your investment portfolio. You hand over the responsibility of managing your portfolio to the manager with a discretionary service. With a non-disciplinary service, you must approve decisions made by your manager.
FAQ’s
1. Who makes investment decisions in a discretionary PMS?
With a discretionary PMS, the appointed portfolio manager makes investment decisions on your behalf, without requiring your consent.
2. Who is responsible for executing trades in a non-discretionary PMS?
In a non-disciplinary PMS, your manager will provide you with investment advice, but requires your approval to act on it.
3. What level of control does the investor have in a discretionary PMS?
If you opt for a discretionary PMS, your portfolio manager makes and executes investment and other decisions without requiring much of your involvement.
4. Can investors give specific instructions in a non-discretionary PMS?
Yes, in non-discriminatory PMS, the final investment action rests in your hands, and hence, you can give instructions or suggestions.
PL Blog
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
