One of the most common anxieties for high-net-worth investors transitioning from self-directed trading or Mutual Funds to a Portfolio Management Service (PMS) is the sense of “losing control of the wheel.” After spending years building a corpus, handing over a  cheque for ₹50 lakh or more naturally brings up a critical question: Who actually decides the investment, when to sell, and at what price?

While you are the legal owner of the assets, the “control” of daily trading decisions depends entirely on the type of PMS you choose and the boundaries set during your onboarding. This guide breaks down the hierarchy of authority in a PMS, what rights you retain, and how the law protects your interests.

1. The Three Types of PMS and Who Decides in Each

Control isn’t a one-size-fits-all concept in the world of PMS. SEBI (Securities and Exchange Board of India) categorizes these services into three distinct models, each with a different level of investor involvement.

Discretionary PMS: The Manager is the Pilot

In a Discretionary PMS, the Portfolio Manager has full autonomy. They do not need to call you for permission before every trade. They buy and sell based on the strategy you agreed upon.

• Who decides? The Fund Manager.
• Why choose this? Most investors choose this because they want professional expertise and don’t have the time to track market movements minute-by-minute.

Non-Discretionary PMS: The Manager is the Co-Pilot

Here, the manager acts as an expert advisor but restrained in final investment decisions. They will suggest a trade, but they cannot execute it until you provide explicit approval.

• Who decides? The Investor (based on the Manager’s advice).
• Why choose this? Ideal for those who want professional research but want to retain the final “Yes/No” power over every investment.

Advisory PMS: The Manager is the Navigator

In this model, the manager only provides advice. The actual execution is handled by you directly.

• Who decides? The Investor.

2. What Happens Before Trading Begins: The Investment Policy Statement

Before a single rupee is invested or a trade is executed, the investor and the PMS provider must agree on a formal mandate. While SEBI regulations focus on the Account Opening Agreement and Disclosure Document, the industry standard for outlining your specific goals is commonly referred to as the Investment Policy Statement (IPS).

Think of the IPS as the “constitutional law” for your portfolio.

What the IPS Typically Includes:

• Investment Strategy: (e.g., focused large-cap, aggressive small-cap, or diversified multi-cap).
• Risk Profile: Your tolerance for volatility and drawdown.
• Asset Allocation Limits: How much can be in cash vs. equity.
• Sector Exposure Caps: Ensuring the manager doesn’t put “all your eggs in one basket” (e.g., capping Banking at 30%).
• Use of Derivatives: Explicit permission (or prohibition) of leverage or hedging.
• Investment Horizon: The expected time frame to achieve your financial goals.

Why this document is critical:

1. Boundaries of Control: It defines exactly what the Fund Manager is allowed to do.
2. Accountability: It acts as a legal and ethical fence for all trading decisions.
3. Alignment: It ensures that even in a “Discretionary” setup, the manager’s actions are perfectly synced with your expectations.

Every trade executed in your PMS must fall within this agreed framework. If a manager buys a high-risk derivative when your IPS strictly mandates “Cash and Blue-chip Equity,” they have violated their mandate—regardless of whether the trade was profitable.

3. What the Fund Manager Can and Cannot Do

Understanding this boundary is essential to building trust.

What the Fund Manager Can Do

• Buy and sell securities within the agreed mandate
• Rebalance the portfolio based on market conditions
• Act quickly on opportunities without waiting for approval
• Adjust allocations within defined limits

This flexibility is what allows PMS managers to generate alpha.

What the Fund Manager Cannot Do

• Deviate from the agreed strategy without your consent
• Transfer funds or securities to their own account
• Use leverage or derivatives beyond agreed limits
• Take decisions outside the defined risk framework

In simple terms:

The manager controls execution, but not ownership or mandate.

The Price of Activity: Who Pays for the Trades?

A common concern for investors is: “If the manager decides to rebalance frequently, who pays for it?”

In a PMS, all transaction costs are borne by the investor. Every time the manager rebalances the portfolio, the following costs may be deducted from your corpus depending on the underlying investments:

For equity and securities-based portfolios:

• Brokerage Charges: Paid to the broker for executing the buy/sell.
• Statutory Levies: STT (Securities Transaction Tax), GST, and Stamp Duty.
• Custodian & Demat Fees: Charges for the safekeeping and movement of shares.

For Mutual Fund-based portfolios:

• Exit Loads: Charged when units are redeemed before a defined holding period.
• Expense Ratio: The annual cost of managing the underlying fund, deducted from the NAV.
• GST: Applicable on management and advisory fees charged by the PMS provider.

Applicable across both:

• PMS Management Fees: Charged by the portfolio manager, typically as a fixed percentage of AUM or a performance-linked fee.

Why this matters for control: Because the investor bears these costs, excessive rebalancing can quietly erode your net returns. When evaluating a manager, ask about their rebalancing philosophy. A disciplined manager only reallocates when the expected gain meaningfully outweighs these costs.

4. The Role of the Power of Attorney (POA)

To enable smooth execution, investors grant a Power of Attorney (POA) to the PMS provider.

This is often misunderstood.

What the POA Does

• Allows the manager to execute trades on your behalf
• Enables operational efficiency
• Facilitates portfolio rebalancing

What the POA Does Not Do

• It does not transfer ownership
• It does not allow fund withdrawal for their own use
• It does not give unrestricted control

Your securities remain in your own demat account, in your name.

SEBI regulations ensure that the POA is limited in scope and strictly monitored.

The Custodian: The Silent Guardian of Your Assets

While the Fund Manager makes the decisions and the POA enables the movement of stocks, the Custodian is the third-party entity that actually holds the securities.

In a PMS, the Fund Manager never physically touches your money or investments. The Custodian acts as an independent “safe-keeper” who:

• Settles Trades: Ensures that when a manager exits an investment, the money comes back into your account and nowhere else.
• Safety Audit: They cross-verify every trade against SEBI regulations to ensure the manager isn’t overstepping.
• Reporting: They provide independent statements, so you aren’t just relying on what the PMS provider tells you.

Think of it this way: The Manager is the driver, but the Custodian is the vault where the car is kept when not in use.

5. Can the Investor Override or Intervene?

A common misconception is that once you sign up for a Discretionary PMS, you are “locked out.” This is false. As the owner of the capital, you retain several “override” rights:

1. Exclusion Instructions: You can tell your manager, “I don’t want to hold any investments from a certain industry.” The manager is duty-bound to respect these “negative lists.”
2. Termination: You can exit the PMS at any time (subject to the exit load mentioned in your agreement). Once you terminate, the manager loses all trading authority immediately.
3. Grievance Redressal: If you feel the manager is ignoring your mandate, you can use SEBI’s SCORES platform to file a formal complaint.

6. How to Evaluate a Fund Manager Before Handing Over Control

Since the manager will be making the decisions, your “control” is exercised most effectively during the selection process. Ask these four questions during onboarding:

• What is the “Investment Universe”? (Which investments are they allowed to pick from?)
• Who is the specific Principal Officer? (The person registered with SEBI as personally liable for all portfolio decisions).
• What triggers a sell decision? (Is it based on a price target or a change in company fundamentals?)
• How often will I get transparency? (Standard is quarterly, but many provide daily digital dashboards).

The goal is to ensure that:

You are not just investing in a product, but in a process and a decision-making framework.

7. Conclusion

In a PMS structure, especially discretionary PMS, the Fund Manager controls day-to-day trading decisions.

However, this control operates within clearly defined boundaries:

• The strategy and limits are pre-agreed through the Investment Policy Statement
• Ownership of assets remains with the investor
• The Power of Attorney enables execution, not ownership transfer
• The investor retains the right to intervene, customise, or exit

Ultimately, PMS is a balance:

The manager brings expertise and agility in execution, while the investor retains ownership, oversight, and the ability to walk away.

The key is not just who controls the trades—but what you agreed to before giving that control.

More Frequently Asked Questions (FAQs)

1. Can I “veto” or stop a specific trade that I don’t like in a Discretionary PMS?

Technically, no—not on a trade-by-trade basis. In a Discretionary PMS, you have delegated the “timing and selection” authority to the manager. If they decide to sell a stock at 10:00 AM, the trade is executed instantly. You cannot “undo” it after the fact. However, you can give standing instructions (a “Negative List”) before the trade happens. For example, if you never want to own “Company X” for ethical or personal reasons, you can mandate its exclusion in your agreement.

2. What happens if the Fund Manager makes a mistake or a series of bad trades?

Market losses are a part of investing and the manager is not liable for them, provided they stayed within the “Investment Mandate” (IPS). However, if the manager makes an unauthorized trade—such as buying a stock that was on your “Negative List” or exceeding the sectoral exposure limits set in your agreement—they are in violation of SEBI regulations. In such cases, you can file a complaint through SEBI’s SCORES portal, and the firm can be held accountable for the regulatory breach.

3. How often is my portfolio status updated, and can I see it in real-time?

As per SEBI regulations, PMS providers must provide a report at least once every quarter. However, in today’s digital-first environment, almost all top-tier providers give you a 24/7 Digital Dashboard. This dashboard usually reflects your holdings as of the previous day’s market close. Since the assets are in your own account, you can also cross-verify your holdings directly — equity holdings via NSDL or CDSL, and mutual fund holdings via CAMS or MFCentral.

4. Can the Fund Manager use the “Power of Attorney” to move my stocks to another person’s account?

Absolutely not. The POA is a Limited POA, restricted only to executing transactions within your agreed mandate. Furthermore, the independent Custodian acts as a gatekeeper and they will only process a redemption or switch that is settled through the correct regulatory channel. They cannot and will not transfer your investments to another individual or the manager’s corporate account. This separation of duties is the ultimate safeguard for your capital.

5. What is a “High Water Mark,” and how does it relate to the manager’s decisions?

The High Water Mark is a protection for you. It ensures that the manager only earns a performance fee on new profits. If your portfolio drops from ₹1 Crore to ₹80 Lakh, the manager must first bring it back up to ₹1 Crore before they can charge a performance fee on any further gains. This aligns the manager’s trading decisions with your interests—they are incentivized to recover your losses quickly before they can make their own “bonus” profit.