Discretionary Portfolio Management: Overview, Benefits & How It Works

Managing money the right way is essential to achieving your financial goals faster. However, making smart investment decisions requires time, knowledge, and discipline, something not everyone may have. That’s where Discretionary Portfolio Management (DPM) comes in. 

It allows investors to delegate investment decisions to experienced professionals who manage their money with care and expertise. 

In this beginners guide to PMS, we will discuss discretionary portfolio meaning, how it works, its key benefits, fee structures, and whether it aligns with your financial needs. 

We’ll also explain how it stands apart from mutual funds and DIY (do-it-yourself) investing.

What is Discretionary Portfolio Management?

Discretionary Portfolio Management  is a type of wealth management service where a professional portfolio manager is given the authority to make investment decisions for the client. This means the manager can buy or sell stocks, bonds, or other assets without asking for the client’s approval each time, as long as it follows the agreed investment plan.

It helps save time and ensures quick action in the market. With expert handling, DPM can be a smart option for investors who prefer a hands-off approach to growing their wealth.

A stock market advisor plays a crucial role in discretionary fund management  by using their experience and market knowledge to make timely decisions that align with the client’s financial goals and risk profile.

Key Features of DPM

• Authority & Trust: The portfolio manager makes investment decisions without prior client approval, based on the client’s risk profile and financial goals.
  
• Personalisation: Portfolios are tailored to the individual client rather than pooled with others, as in mutual funds.
  
• Objective Focus: Decisions are driven by analysis, strategy, and market dynamics, not emotions.

How It Differs from Mutual Funds or Advisory Services

Aspect	Discretionary PMS	Mutual Funds	Investment Advisory
Control	Manager has full decision-making authority	Fund manager manages pooled funds	Investor decides based on advice
Personalisation	High—custom portfolio per client	Low—same portfolio for all investors	Moderate—depends on investor
Transparency	High	Moderate	High
Minimum Investment	₹50 lakhs (as per SEBI guidelines)	As low as ₹500	No fixed requirement

How Does Discretionary Portfolio Management Work?

Understanding the workflow of discretionary PMS will help you grasp why it’s often preferred by serious and seasoned investors.

1. Client Onboarding and Risk Profiling

• Every investor is different. The first step involves understanding your financial goals, risk appetite, investment horizon, and liquidity needs.
  
• The portfolio manager conducts a detailed risk profiling and financial assessment.
  

2. Creating an Investment Mandate

• Based on the profiling, a detailed investment mandate is drawn up.
  
• This includes asset allocation strategy, benchmarks, constraints (if any), and risk limits.
  

3. Portfolio Construction and Execution

• The manager constructs a customized portfolio across equity, debt, ETFs, or other instruments.
  
• The manager has full discretionary powers to make buy/sell decisions in real time.
  

4. Ongoing Monitoring and Rebalancing

• Market conditions are dynamic. The manager actively rebalances the portfolio to stay aligned with the client’s objectives.
  

5. Reporting and Compliance

• Regular performance reports, audit compliance, and SEBI regulations are adhered to, ensuring transparency.
  

Discretionary vs Non-Discretionary Portfolio Management

Here’s a comparative overview of the two styles of PMS:

Feature	Discretionary PMS	Non-Discretionary PMS
Decision Making	Portfolio manager takes all decisions	Client must approve every transaction
Execution Speed	Fast—real-time decision execution	Slower—waiting for client approval
Client Involvement	Minimal	High
Best Suited For	Busy professionals, HNIs, NRIs	DIY investors who want more control
Efficiency	High	Moderate to low
Risk of Emotional Bias	Low—decisions are professional	High—client emotions may intervene

Who Should Opt for Discretionary Portfolio Management?

Discretionary portfolio management is not a service for everyone. It is ideal for:

1. High-Net-Worth Individuals (HNIs)

• Those with investable assets above ₹50 lakh who want a more sophisticated approach to wealth creation.
  

2. Time-Constrained Professionals

• Doctors, lawyers, business owners, and executives who lack time for daily market tracking.
  

3. Investors Seeking Professional Management

• Those who prefer expert-led decisions and strategic rebalancing without micromanagement.
  

4. NRI Investors

• Especially useful for NRIs who want seamless investment management in India without geographical restrictions.
  

Key Benefits of Discretionary Portfolio Management

1. Professional Expertise

• Access to seasoned fund managers who understand markets, asset classes, and macroeconomic trends.
  

2. Customised Strategy

• Unlike mutual funds, PMS portfolios are crafted as per your specific investment objectives and constraints.
  

3. Discipline & Objectivity

• Eliminates emotional biases like fear and greed from the investing process.
  

4. Transparency

• Regular updates, audited statements, and portfolio reports ensure you stay informed.
  

5. Better Risk Management

• Active portfolio monitoring and dynamic asset reallocation reduce downside risks.
  

6. Tax Efficiency

• Transactions are made in the client’s name, enabling better tax-loss harvesting strategies.
  

What to Expect from a Discretionary Portfolio Manager?

When you sign up for DPM, your expectations should be aligned with industry best practices to fully experience the range of PMS benefits such as transparency, expertise, and personalised portfolio management.

1. SEBI-Compliant Services

• The manager and PMS firm must be registered with the Securities and Exchange Board of India (SEBI).
  

2. Style of Portfolio Construction

• Managers may follow value investing, growth strategy, sector rotation, or multi-cap allocation, based on the client mandate.
  

3. Transparency & Access

• Expect quarterly reports, email statements, and online dashboards to track performance.
  

4. Regular Interaction

• While you don’t make daily decisions, annual reviews or check-ins are often arranged to align with changing financial goals.
  

5. Third-Party Custody

• Securities are held in the investor’s demat account, offering added safety and ownership.
  

Performance Reporting & Risk Monitoring in Discretionary PMS

1. Benchmark Comparison

• Returns are compared against chosen benchmarks like NIFTY50, BSE500, etc.
  

2. Performance Metrics

• Reports include internal rate of return (IRR), time-weighted return (TWR), and risk-adjusted return ratios.
  

3. SEBI Mandated Disclosures

• All PMS firms are required to disclose performance in a standard format on their websites.
  

4. Risk Monitoring

• Regular stress testing, volatility tracking, and drawdown monitoring are conducted to manage downside risk.
  

Discretionary PMS Charges & Fee Structures

Charges vary between providers but typically include:

1. Fixed Fee Model

• A flat percentage charged on Assets Under Management (AUM), e.g., 1.5%-2.5% annually.
  

2. Performance-Based Fee

• Charges based on returns generated beyond a certain benchmark or hurdle rate (e.g., 10% returns).
  

3. Hybrid Model

• A mix of fixed and performance-based fees.

Fee Type	Details
Account Setup Fee	One-time charge (often waived)
Management Fee	1.5%–2.5% on AUM
Profit Sharing	10%–20% of returns above hurdle rate
Exit Load	May apply if exited before lock-in

Final Thoughts

Discretionary Portfolio Management is a powerful tool for managing wealth, though it may not be suitable for every type of investor. To understand its suitability, it’s important to grasp the discretionary fund management meaning, a service where investment decisions are made by professionals on your behalf. 

If you appreciate having a personalised portfolio tailored to your financial goals and want disciplined, expert-driven management, discretionary portfolio management could be the right choice. However, it may not be suitable for those who prefer low-cost mutual funds, wish to make all investment decisions themselves, or have a smaller investment amount.

FAQs

Is discretionary portfolio management suitable for beginners?

Not always. It’s better suited for experienced or high-net-worth investors. Beginners can start with mutual funds and move to DPM as their knowledge and capital grow.

What is the minimum investment required for discretionary PMS in India?

As per SEBI guidelines, you must invest a minimum of ₹50 lakh in any SEBI-registered discretionary PMS.

How is discretionary PMS different from mutual funds?

In PMS, your portfolio is separately managed and customised. In mutual funds, your money is pooled with others and managed collectively. PMS also offers more transparency and personalisation.

Can I track or intervene in my discretionary portfolio?

You can track your portfolio regularly through reports and dashboards. But you cannot intervene in daily decisions—that’s the manager’s job under a discretionary model.

What returns can I expect from discretionary portfolio management?

Returns depend on market conditions and the manager’s strategy. Some PMS products have delivered 12–20% CAGR, but returns are not guaranteed.

Is PMS regulated by SEBI?

Yes. All Portfolio Management Services (PMS), including discretionary ones, are regulated by the Securities and Exchange Board of India (SEBI). This ensures transparency and investor protection.

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