Investing in debt portfolio management services

Debt PMS offerings aim to provide long-term capital and income appreciation, just like debt mutual funds but the difference in yield approach and risk appetite

Staff Writer   /   May 29, 2021

Debt Portfolio Management Service (PMS) provides high net worth investors an opportunity to take part in Indian debt markets. This investment approach is tailored to discerning investors, who want a mix of high yield, high income and moderate safety. Given that HNIs prefer to cap equity exposure to 50 per cent of their overall portfolio, debt PMSes are gaining currency as an alternative to generate fixed income type returns. Read on to know more about them.

Liquid strategy

Debt PMSes can be broadly divided into three categories. The first one is liquid strategy.

Liquid debt strategies in the PMS space are suitable for those investors who are seeking capital preservation, and liquidity.

This is apt for investors looking to diversify into debt. Do note that Debt PMS liquid strategies involve low risk and high principal preservation with consistent income.

Liquid strategies are customised, though they retain the flexibility to invest in a wide array of debt papers. The typical investment horizon is about 1 year. Investments are done in cash, money market, and other short maturity fixed income securities. You can compare Debt PMS liquid strategies with overnight, liquid and ultra-short debt mutual fund product baskets.

In the PMS industry, players such as Almondz, Alchemy, Abakkus, Allegro, ASK, Birla Sun Life AMC, Carnelian etc. offer liquid strategies.

Mid-yield strategy

The next broad category in debt PMS world is mid-yield strategy.

A mid-yield debt PMS strategy has the objective of earning higher risk adjusted returns by taking exposure in debt securities in India. It targets the intermediate yield space (ratings between AA and BB) using a buy-to hold approach with a 2 to 3-year horizon. The portfolio focus is to remain diversified across sectors to mitigate credit risk.

Present offerings in the overall mid-yield debt PMS space are Scient Capital Aries, Karvy Excel, AK Capital Credit Ease, Barclays Discretionary Dynamic Fixed Income etc.

Do note that unlike in mutual funds, PMSes do not have fixed categories which means strategy definitions can be loose and vary from one PMS house to another.

Mid-yield debt PMS strategies strive to provide a moderately higher yield than many bank FDs. Some offerings may provide scheduled monthly cash-flows to investor.

High-yield strategy

As the name indicates, high-yield PMS debt strategies is about potential high returns. A high-yield strategy is designed for investors seeking regular income and long term capital appreciation. It will invest across various types of high yield debt including real estate backed debt, structured mezzanine debt and securitized debt. A couple of high-yield debt PMS offerings are Scient Capital Orion and Karvy Demeter.

High-yield PMSes target mid-sized companies across sectors where the entities have limited sources of capital. These high-yield opportunities are generally lower rated. Hence, such debt PMSes do investments in privately originated and actively managed portfolio of diversified debt investments issued by mid-sized businesses. Bear in mind these are much more risker. You can compare them with high-risk credit oriented mutual funds.

Why Debt PMS

Mutual funds also offer debt schemes. Then, why should you invest in debt PMSes? Good question.

Debt PMSes provide high customisation to address clients’s needs and risk appetite, which is not present in mutual funds. MFs are products that are meant for many investors, and lacks individuality.

In debt PMSes, clients directly own securities held in an account in their name. In debt MFs, unitholders own units of the fund, which in turn owns securities in the portfolio.

Also, in debt PMSes there is daily reporting of portfolio status – 100% transparent, enabling constant monitoring. However, in debt MFs, NAV is reported daily but portfolio composition reported periodically (monthly).

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