PMS Review: Porinju Veliyath's Equity Intelligence PMSPorinju Veliyath is popularly called India’s Warren Buffett. His spectacular performance as an investor is evident from the returns in his Equity Intelligence (EQ) Portfolio Management Service (PMS), as shown in the table below.

Performance of EQ PMS

Investment Annualized Return 2003 – 2017 Rs 10 lakh would be worth
Nifty 50 17.32% Rs 93.5 lakh
BSE 500 19.26% Rs 1.17 crore
Equity Intelligence PMS 32.76% Rs 5.28 crore

*Weighted average return of clients who joined in 2003.

Source: Disclosure Document of Portfolio Management Filed with SEBI

What is a PMS?

A PMS or Portfolio Management Service manages a stock portfolio on your behalf. It is somewhat similar to an equity mutual fund but there are major 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.

From trader to investor

Porinju Veliyath grew up in tough circumstances. His family home had to be sold off due to financial problems when he was just 16. He initially worked for Kotak Securities as a floor trader in Mumbai before moving to Parag Parikh Securities as a research analyst and fund manager. He worked in this role for five years but wasn’t happy with life in Mumbai. He moved back to his hometown Kochi in 1999, working initially as a private investor. In 2003, he officially launched is Equity Intelligence PMS.

Equity Intelligence (EQ) PMS

This is a discretionary PMS, meaning that the decisions to buy and sell stocks are taken by the PMS manager, without needing your approval. The minimum investment required to join the PMS is Rs 25 lakh. There is no lock-in as such and you can withdraw your investment at your discretion. The PMS returned 71.69%, 11.42% and 46.98% in the financial year 2015, 2016 and 2017, respectively, massively outperforming the Nifty 50 and BSE 500 over all those years.

Fees

The PMS charges a fee of 2% on the quarterly average balance in it and a fee of 10% on the returns it makes above 10%.

For example, if you have Rs 100 invested in the PMS and it grows to Rs 115 over the year, you will pay (approximately):

  1. a 2% on your PMS balance of 115 which is 2.30
  2. a 10% of return above 10%. The return above 10% is Rs 5 (115-110). 10% of this amount is Rs 0.5.

Thus in total, you will pay Rs 2.8 on your initial investment of Rs 100. There may be some additional charges for brokerage, stamp duty, audit fees etc

Tax

The tax on the realised capital gains in PMS falls on you, the investor. The PMS provider will send you a statement at regular intervals which will help you know what these gains are.

The rate of tax is 15% on gains made in less than one year and 10% (with a Rs 1 lakh annual allowance) on gains after a one-year holding period.

Should you invest?

PMS is meant for people of a certain net worth. The minimum amount you can invest is Rs 25 lakh. Being an equity product, it is also highly volatile and risky. That said, you will have Mr Veliyath’s skill and expertise at your service.

The EQ India Fund

This is a fund launched by Porinju’s team in July 2017. It is a Category III Alternative Equity Fund (AIF) meaning that the fund can use leverage (borrow money to invest) and subscribe to preferential allotment, institutional placement and so on. It has a minimum investment of Rs 1 crore.

The fund delivered 29.39% in just five months compared to 5.09% for the Nifty. Porinju’s letter to investors in January 2018 cites the changing profiles of certain midcap companies as one of its key focus areas. Many of them are entering a new growth path, and have better corporate governance, balance sheet quality and so they are well-suited for shareholder wealth creation.

RupeeIQ Take

Just having one crore of rupees isn’t enough, as you will be committing this kind of money to equity for a longer period. So don’t rush into the fund unless you have a few crores of rupees at hand and are willing to wait for at least five years.

Note:

This article is only for your informational purposes and is not an advice. Securities investments are subject to market risks, so talk to your financial advisor before investing.

Also, the past performance of the portfolio manager is not indicative of future performance.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.