IIFL Multicap Portfolio PMS was launched in December 2014. Its strategy is to invest in companies and in sectors that are available at a significant discount to their intrinsic value and provide earnings visibility. The portfolio takes a concentrated position in stocks and endeavours to strategically change allocation between sectors depending on changes in the business cycle.
The strategy also uses put options up to 8% of the corpus to shield the portfolio from market downturns. A put option pays off when the market falls. The PMS buys put options as close to three years in maturity as possible.
The minimum investment is Rs 25 lakh and the minimum recommended tenure is 36 months. The fund manager of IIFL Multicap Portfolio PMS is Aniruddha Sarkar who has been with the IIFL group for eight years and has over a decade’s experience in financial services. The portfolio manager, IIFL Asset Management, is led by Prashasta Seth, who was fund manager of the recently launched IIFL Capital Enhancer Fund.
As of November 2017, the PMS has shown a return of 22.6% since inception in 2014 as against the Nifty returns of 23.46% during the same period. But in 2-year returns, the PMS has outperformed the index more than twice with 22.32% as against 10.97%.
|Portfolio||1 year||2 years||Since Inception|
|IIFL Multicap Portfolio||12.04||22.32||22.26|
Source: IIFL PMS Presentation, Data as of November 2017
What is a PMS
A PMS or portfolio management service manages a portfolio of stocks on your behalf. It is similar to an equity mutual fund but there are key differences. A mutual fund pools money from several investors and issues units in lieu of its assets. These units have a Net Asset Value or NAV which is declared on each business day.
A PMS does not pool your money with other people’s and does not issue units. The stocks in the PMS are held in your own name and your money in the PMS is held separately from that of other investors. Unlike a mutual fund, you can also transfer your existing stocks to a PMS. In other words, you give your existing stock portfolio to the PMS manager to manage.
The investment fee for IIFL Multicap Portfolio PMS is 2.5% for an investment of less than Rs 5 crore. It is 2% for an investment of Rs 5-15 crore and 1.5% for an investment of more than Rs 15 crore. In addition, the PMS manager will also incur brokerage and other transaction costs like Securities Transaction Tax (STT), service tax, custodial charges etc. There is also a placement fee of up to 2% of the committed amount. It is our understanding that placement fee is paid to your distributor/agent. The portfolio benchmark is the Nifty 50.
A PMS can incur short-term capital gains tax or long-term capital gains tax depending on when it sells its holdings. It can also generate other taxes on its income (like interest income). You are liable to pay this tax every year and not the PMS manager even if you have not sold your holdings in the PMS. In this respect, a PMS is fundamentally different from a mutual fund.
Should you invest?
Unlike a mutual fund, a PMS can take a concentrated bet on a few stocks. This can either lead to spectacular returns or spectacular losses. It can also use derivatives such as put options to hedge its downside. This once again makes it a riskier instrument than a mutual fund but a potentially more rewarding one. That said, IIFL group has a strong reputation for investment management and the historical performance of this PMS has been good. If you think your equity allocation needs a PMS element, then you can consider investing with a minimum allocation.
See our other PMS coverage