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The rising income levels of Indians have given rise to huge demand in professional wealth management services. Portfolio advisory services in India offer a variety of wealth advisory services which include portfolio management services and non-discretionary portfolio advisory services.
There are many types of PMS providers, such as asset management companies (AMC), independent individual portfolio managers and large institutional managers. In this service, the portfolio manager makes all the investment decisions and has the power of attorney (PoA) to buy and sell shares on behalf of the investor. The portfolio manager individually and independently manages the funds of each client.
In non-discretionary portfolio advisory services the portfolio manager needs the client to confirm before buying or selling the stock recommended. The portfolio manager cannot execute buy or sell transactions at his own discretion as it is necessary to refer to the client for every transaction.
In portfolio management service, the portfolio manager may tend to churn the portfolio frequently resulting in higher brokerage for the client.
Apart from higher brokerage charges in a portfolio management service due to frequent churning of portfolio, it may also result in higher tax liability for the investor on account of short term capital gains.
In non-discretionary portfolio advisory service, it is up to the investor to decide whether he wants to invest in a particular stock or not from the list of stocks recommended by the non-discretionary advisory service.
To conclude, non-discretionary portfolio advisory service offers a better proposition to investors over portfolio management service mainly due to its transparency factor and higher degree of control which vests with the investor himself.