PRIM’s edge: Timely rebalancing, smart use of SIFs & passive funds
The Portfolio Managers Route for Investing in Mutual Fund units (PRIM), approved by the market regulator recently, provides a structured approach to asset allocation in the underlying mutual fund framework. The edge is better allocation, timely rebalancing and fewer concentration risks.
In PRIM, the manager will build your portfolio with mutual funds, index funds, derivatives and specialised investment funds (SIF). The entry point is Rs 25 lakh against Rs 50 lakh for portfolio management services (PMS). So, the service layer broadens the funnel for retail investment across market segments and provides scope for customisation.
In fact, PRIM’s true contribution will be managing mutual funds investment better as most investors own an overlapping pile of schemes bought over the years without any portfolio approach. “PRIM will bring professional discipline to that clutter with proper asset allocation, deliberate fund selection and timely rebalancing,” says Gurmeet Singh Chawla, managing director, Master Capital Services.
Made for tough times
In a roaring bull market, a concentrated PMS can run ahead, but PRIM’s diversified approach will usually hold up much better when things get rough. The real edge will come by regular rebalancing, and smart use of SIF and passive funds. Sonam Srivastava, chief executive officer, Wright Research, says, over a full cycle that can mean better risk-adjusted returns. “But if someone is selling PRIM as a way to beat a good equity PMS outright, that’s just setting the wrong expectation,” she says.
Customisation is the biggest advantage as it allows the portfolio manager to construct different combinations with dynamic allocation across market cycles. The portfolio can be built around an investor’s specific risk profile rather than following a one-size-fits-all allocation.
As index funds are cheap, transparent and easy to rebalance, these will form the core of most PRIM portfolios. “The key value proposition will be how effectively the manager combines categories, rather than simply selecting the best-performing fund,” says Aditya Agarwal, chief investment officer, Avisa Wealth Creators.
The market regulator has capped fixed management fee at 1% of assets under management along with a performance-linked fee. The underlying funds will also have their own expense ratios. But cost alone isn’t the full test, because PRIM portfolios will not share a single objective the way a mutual fund category does. One mandate may chase return; another may exist mainly to lower overall risk through conservative, low-volatility allocations. Since these will be customised rather than standardised products, each has to be judged on its own stated purpose before investing.
PRIM is not necessarily a higher-return version of PMS. It offers better risk-adjusted returns and greater consistency, particularly for investors who do not want direct-stock concentration. “The key is whether the portfolio manager’s allocation decisions add enough alpha to justify the additional layer of fees,” says Anil Rego, founder, Right Horizons.
Tax implication
Every time the manager rebalances the PRIM portfolio, it will count as a redemption and trigger a taxable event. If the manager is too aggressive with rebalancing, a lot of the value added can get eaten up by tax drag.