If you are looking at Portfolio Management Services (PMS) in India, the first question you should ask yourself is whether you want someone else to make all the investment decisions for you or whether you want to be involved before anything is bought or sold.
That is the difference between discretionary and non-discretionary portfolio management. Both are legal and SEBI-regulated ways. But they are suited to very different types of investors. This guide will walk you through what each one means, how they work in practice, and how to determine which one fits your situation.
What Is Discretionary Portfolio Management?
Discretionary PMS gives the portfolio manager complete authority to make all the investment decisions for you. You don’t have to OK every trade; they decide what to buy, when to sell, and how to allocate your money across the securities.
You also sign an agreement up front that sets out your financial goals, your appetite for risk, and your investment strategy. The manager then has free rein within agreed parameters.
Discretionary PMS is meant for investors who want to be professionally managed with less participation, according to SEBI’s investor education portal. Your assets still remain in your own demat account in your name, and the manager acts on your behalf under a power of attorney to do the trades.
And this is why this model is attractive to many HNIs. Life is busy. A senior professional or business owner with lots of capital often lacks the time or desire to analyze quarterly results, follow sector rotations, or time entry and exit points. Discretionary PMS takes that burden away completely.
How Discretionary PMS Works: Step by Step
- You meet with the portfolio manager to discuss your goals, risk appetite, and investment time frame.
- You sign a portfolio management agreement and fund your demat account.
- The manager creates your portfolio according to the agreed strategy.
- Trades are executed without your prior approval for each trade.
- You’ll get regular reports detailing your holdings, performance, and any changes made.
What Is Non-Discretionary Portfolio Management?
A non-discretionary PMS means that you will get research-based recommendations and strategies from the portfolio manager, but you will be the one making the final call on every trade. No action is taken without your explicit consent.
The manager researches and presents the idea to you. You look at it, see if you agree, and give it the go-ahead. The trade is only put in after that.
As per the SEBI’s investor education portal, the non-discretionary PMS is apt for investors who want expert advice but want to keep the decision-making authority.
The practical upshot of this is that if the manager sees a buying opportunity and you are out for a couple of hours, the trade waits. Sometimes that delay can mean losing a price point. That means you need to be very engaged with your portfolio and ready to make timely decisions.
How Non-Discretionary PMS Works: Step by Step
- You make a portfolio management agreement that describes your investment goals.
- The manager will research and find investment opportunities.
- The manager recommends it to you based on the supporting analysis.
- You go through each recommendation and accept/reject it.
- Once you approve the trade, the manager will do it.
- You receive regular reports on your performance and portfolio statements.
Discretionary vs Non-Discretionary Portfolio Management: A Direct Comparison
Let’s break it down side by side.
| Feature | Discretionary PMS | Non-Discretionary PMS |
| Decision-making authority | Portfolio manager | Investor (with manager’s advice) |
| Trade execution | The manager acts independently | Requires investor approval per trade |
| Investor involvement | Minimal | Active and regular |
| Execution speed | Faster, no approval delays | Can be slower due to the approval process |
| Suitable for | Busy investors who trust professional management | Investors who want control but value expert research |
| Unlisted securities | Not permitted under SEBI rules | Permitted up to 25% of AUM |
| Accountability | The manager is responsible for the decisions | Shared between the manager and the investor |
The Third Type: Advisory PMS
No comparison of types of PMS should ignore the advisory model. In advisory PMS, the portfolio manager is limited to providing investment advice. You will receive recommendations, but you will be responsible for executing the trades yourself in your own account.
This model is most appropriate for experienced investors who have the time, tools, and market knowledge to act on professional recommendations independently. The manager acts as an advisor, not an active portfolio manager.
Advisory PMS is the one where the maximum responsibility is on the investor, as opposed to the discretionary and non-discretionary PMS. It may also indicate relatively lower fees as the manager is not involved in the execution.
SEBI Regulations That Apply to All Three Types
SEBI (Portfolio Managers) Regulation 2020 covers all three models: discretionary, non-discretionary, and advisory. Whichever type you choose, here are the regulatory requirements that protect you.
SEBI Registration: All PMS providers need to get registered with SEBI. You may verify the registration status of any SEBI-registered provider on the SEBI website.
SEBI has prescribed a minimum investment of Rs 50 lakh per client. This applies to all three types of PMS.
Compliance Officer: Each PMS provider has to appoint a dedicated compliance officer to ensure compliance with SEBI guidelines.
PMS Providers’ Disclosure Requirements: PMS providers must provide periodic performance, fees, and risk disclosures to investors.
Independent Custodian: Your assets are held by an independent custodian not affiliated with the portfolio management firm to help eliminate conflicts of interest.
Annual Audit: An annual audit by an independent Chartered Accountant is required, and the audit certificate is to be shared with the client.
Investment Restrictions: Discretionary PMS is not allowed to invest in unlisted securities. Under non-discretionary and advisory PMS, investments in unlisted securities can be up to 25% of AUM. Investments in related parties or associates of the portfolio manager are limited to 30% of AUM, with client consent required. Equity portfolios cannot be leveraged or borrowed.
No 100% Return Guaranteed: Portfolio managers are not permitted to guarantee returns to clients. “Any provider who promises guaranteed returns is beyond the purview of SEBI.
Know More : Portfolio Management Services Vs Mutual Fund
How to Choose Between Discretionary and Non-Discretionary PMS
The right choice really depends on your situation. Ask yourself this question:
How much time can you devote to your portfolio? If the answer is very little, discretionary PMS makes more sense. You are paying for professional management; let the professional manage it.
How confident are you about reading investment recommendations? A non-discretionary PMS means that you have to evaluate each trade recommendation and decide if it is suitable for you. If you can’t assess the quality of the recommendation, then accepting or rejecting it becomes a guess. That can be to your detriment.
How important is the timing of execution to you? Fast markets reward quick action. In a non-discretionary PMS, waiting for client approval can sometimes result in a different execution price than you wanted. Discretionary PMS escapes the delay.
Are you looking to be active in your portfolio? Some investors really want to be engaged. They like to read the analysis, talk strategy, and have oversight of every position. Only for such investors is the non-discretionary PMS meant.
A simple way to think about it: If you trust a professional to manage your money and your schedule doesn’t lend itself to active involvement, go discretionary. “If you want to have the control, and you want to have the expertise to back it up, non-discretionary gives you that control.
Fee Structures: What You Should Know
The fee structure for discretionary and non-discretionary PMS is very similar across providers. Most PMS fee structures contain:
- Fixed management fee: Usually 1-2.5% of AUM per year.
- Performance fee: A fee charged when returns exceed a pre-agreed hurdle rate, usually 10% to 20% of the gains above the hurdle.
Operating costs include brokerage, custodian fee, audit fee, and 18% GST on the management fee.
- Entry load: A one-time charge of 1%-3% may be applied.
- Exit load: An early withdrawal penalty of 1% to 3% may apply if you exit in the first one to three years, depending on the provider.
In some cases, an advisory PMS can be a relatively lower fee as the manager is not executing the trades. Always review the entire fee schedule contained in the disclosure document before you sign any agreement.
How Snazzy Wealth Helps You Navigate PMS Choices
The Snazzy Wealth team helps clients to compare and access PMS products from registered providers across India. The team will discuss your financial goals, risk profile, and time availability before suggesting any PMS type or strategy.
Whether you’re contemplating a discretionary PMS for professional management with little involvement or a non-discretionary PMS to retain control over individual trade decisions, Snazzy Wealth can help you match the right structure to your situation. It’s about your real investment time horizon and goals, not just putting you into a product.
If you are new to PMS or haven’t spoken with a qualified distributor, a good first step before committing capital is to reach out to the Snazzy Wealth team.
Risks to Keep in Mind
PMS is not a haven asset. Whatever type you pick, these risks are present.
Market risk is the risk that market fluctuations and general economic conditions will affect portfolio performance. Concentration risk is important because PMS portfolios usually have fewer securities than mutual funds, so the impact of any single position performing badly can be greater. In discretionary PMS, there is a real risk of managerial risk, where your returns are highly dependent on the skill and judgment of the portfolio manager. Liquidity risk refers to the risk of holding less liquid assets in the portfolio, such as small-cap stocks, which are more difficult to sell quickly if necessary.
Read the disclosure document, understand the risk profile of the strategy, and assess your own ability to stay invested through market downturns before making any PMS commitment.
Frequently Asked Questions
1. What is the main difference between discretionary and non-discretionary portfolio management?
In a discretionary PMS, the portfolio manager makes all investment decisions at his own discretion without your approval for each trade. In a non-discretionary PMS, the manager makes recommendations, but you must approve each transaction before it is executed. The main distinction is who makes the trade decisions “on a trade-by-trade basis.”
2. Which type of PMS is better for a busy professional with limited time?
Discretionary PMS is more appropriate for busy investors. The portfolio manager independently operates within the defined strategy, so you don’t have to be available to approve each trade. Non-discretionary PMS needs constant attention and quick decisions, which can be tough when you’re busy.
3. Does SEBI treat discretionary and non-discretionary PMS differently?
Both types are regulated under SEBI (Portfolio Managers) Regulations, 2020, and have a similar minimum investment requirement of Rs 50 lakh. A key difference is that discretionary PMS cannot invest in unlisted securities, whereas non-discretionary and advisory PMS can invest up to 25% of AUM in unlisted securities.
4. Can a PMS provider offer both discretionary and non-discretionary services?
Yeah. A SEBI-registered portfolio manager can offer one or more types of PMS. The provider decides what types to offer. Some firms offer all three of these models; some specialize in one. Before signing an agreement, you should check with the provider what models are available.
5. Are returns guaranteed in any type of PMS?
No. SEBI rules do not permit portfolio managers to guarantee returns to clients. All three types of PMS, i.e., discretionary, non-discretionary, and advisory, involve market risk. The past performance of a PMS strategy is not indicative of its future performance. Be wary of any provider who promises guaranteed returns.
Disclaimer: Portfolio management services investments are subject to market risk. Historical performance of any PMS strategy does not guarantee future results. Please read all scheme-related documents carefully before investing. Snazzy Wealth Pvt. Ltd. (ARN-259333) is an AMFI-registered mutual fund distributor and also a PMS distributor. It does not offer any investment advisory services under the SEBI (Investment Advisers) Regulations, 2013. Please consult a SEBI-registered investment advisor before taking any investment decision.
