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Portfolio Management Service (PMS) Structure and Basics

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Portfolio Management Service (PMS) Structure and Basics

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  1. Portfolio Management Service (PMS) - Structure & Basics A Portfolio Management Service offers NRI investors a personalized investment approach with these key features: Diversified portfolio of equity shares in a separate demat account Dedicated demat and NRE bank account opened for the investor Choice of portfolio strategy/scheme based on investor's financial profile Minimum investment size of Rs. 50,00,000/-

  2. PMS Features & Onboarding Process OnboardingProcess KeyFeatures NRE-PIS (Portfolio Investment Scheme) demat account with a custodian PAN Card & NRE Bank account designated to PMS Single custodian broker requirement for NRIs Operated by reputed AMCs, Stock Brokers & Boutique Portfolio Managers Custody & Demat Account under PIS with empanelled custodian Charging options: Fixed fee & Profit-sharing fee FATCA Declaration & PMS Agreement execution with POA Risk Disclosure Document & Funding the account

  3. PMS vs. Mutual Funds: Key Differences InvestmentBasis MutualFund PortfolioManagement Services ( PMS) Concentrated (Typically 20-40 stocks) Portfolio style Diversified (Typically 50-100 stocks) Regulatory Restrictions Higher 3 Ex. Stock/sectoral caps Lower 3 Ex. No Stock/sectoral caps Impact from other investors Inflow and outflow of other investors impacts all No impact from inflow and outflow of other investors INR 50 Lakhs/- INR 100/- Minimum Investment

  4. PMS Taxation & PFIC Considerations TaxationRatesforNRIs PFICOverview PFIC norms applyto U.S.A. tax residents investing in Mutual Funds and AIFs that operate as pooled investment vehicles Beneficial rates under respective DTAA or Indian Income Rates, whichever is beneficial. PFIC is not applicable to stock holding/trading outside USA Period of holding Type of Income Tax Rate/TDS for NRI 20% (Section 111A) Mark to Market method requires reporting notional gains yearly as ordinary income Taxpayers must file form 8621 to report mark to market gains/losses Less than 12 months Short Term Capital Gain 12.5% after Rs. 1.25 lakh exemption (Section 112A) More than 12 months Long Term Capital Gain - Dividend 20% (Section 115A)

  5. PMS Suitability USA-basedNRIInvestors Attain equity exposure without triggering PFIC taxation guidelines Direct Equity Ownership NRIs intending to retain direct equity ownership structure for existing stock portfolios HNI NRI Investors Looking for differentiation over a Mutual Fund investing style Profit-Sharing Model NRI investors seeking a profit-sharing charging model in portfolio

  6. Alternative Investment Funds (AIFs) - Types Category I AIF Category IIAIF Category III AIF Purpose: Promote socially or economically desirable sectors Purpose: Invest in equity/debt without leverage Purpose: Listed equity or Derivatives / complex trading strategies with leverage Examples: Examples: Examples: Venture Capital Funds Private Equity Funds Equity funds SME Funds Debt Funds Hedge Funds Infrastructure Funds Real Estate Funds Long-short Funds Social Venture Funds Investor Profile: HNIs & institutional investors Investor Profile: Sophisticated investors seeking high-risk/high- return strategies Investor Profile: Risk- tolerant, long-term focus

  7. Category I & II AIFs - Taxation No Tax at Fund level & Taxable to investor Tax / TDS rate Type of Investment Type of Gain 20% STCG Listed Shares 12.5% after Rs. 1.25 lakh exemption LTCG Listed Shares As per Tax Slab STCG Unlisted Shares 12.5% LTCG Unlisted Shares Other Income Types: Dividend Income: 20% (section 115A) Interest Income: As per Tax Slab Business Income: Maximum Marginal Rate (MMR) = 39% (30% basic tax + 25% surcharge + 4% education cess)

  8. Category III AIFs - Taxation Taxation at Fund level & Tax Free to investor Unlisted Shares & Non- equityFunds ListedShares STCG: 23.9% (20% basic tax + 15% surcharge + 4% education cess) STCG: 39% (30% basic tax + 25% surcharge + 4% education cess) LTCG: 14.95% (12.5% basic tax + 15% surcharge + 4% education cess) LTCG: 14.95% (12.5% basic tax + 15% surcharge + 4% education cess) OtherIncomeTypes Business Income: 39% (30% + 25% + 4%) Dividend Income: 35.88% (30% + 15% + 4%) Interest Income: 39% (30% + 25% + 4%)

  9. AIF Suitability & Investment Decisions AIF Suitability for NRIs PMSvs.AIFDecisionFactors Quantum of investment allocation Structured investment into alternate space (unlisted stocks, debt/structured credit, real estate) Indian Taxation compliances Tax reporting in country of residence (Tax credit, No tax compliance requirements through fund level taxation unrealized gain, etc.) Type of investment (Listed stocks, Alternates, etc.) GIFT City related fund investments (Cat-III AIFs) for Indian tax exemption Organized hedge fund exposure in Indian markets

  10. GIFT AIFs vs. Mainland AIF Comparison Basis GIFTAIF Main land AIF Mostly Category III Mostly All categories Type of AIF Mutual Funds, Stocks & Derivatives in certain cases Unlisted stocks, Real Estate, Derivatives, etc. Underlying investment Income Tax & compliance exemption for NRI Purpose of investing Diversification for NRI USD 150,000 Minimum Investment Amount INR 1 Cr Choose the right investment vehicle based on your tax residency, investment goals, and compliance requirements.

  11. Contact Us +(91)93979-98765 www.wealthmunshi.com contact@wealthmunshi.com

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