NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager

Portfolio Management Services: Concept and Types of PMS

Updated 11 October 2026 · Fact-checked

A portfolio management service (PMS) is a service where a SEBI-registered portfolio manager manages a client's money or securities under a written contract. In discretionary PMS the manager decides and executes. In non-discretionary PMS the client approves each decision. In advisory PMS the manager only advises; the client acts.

Understand Portfolio Management Services: Concept and Types

A portfolio management service (PMS) is a professional service in which a portfolio manager invests a client's funds or securities in the securities market, for a fee, under a written agreement. The manager must be registered with SEBI. Under the SEBI Portfolio Managers Regulations, the portfolio manager's activity is defined as advising, directing or undertaking management or administration of a client's portfolio of securities or funds, as per a contract.

The key difference from a mutual fund is that each PMS client has an individual portfolio. The securities are held in the client's own name (or as per the contract), not pooled into units with a single NAV. So two clients of the same manager can hold different securities and earn different returns.

PMS comes in three types, and the exam tests how they differ on who takes the investment decision and who executes it.

Discretionary PMS: the manager takes decisions and executes them on the client's behalf, without asking for approval each time. The manager uses discretion, within the agreed contract and the client's objectives.
Non-discretionary PMS: the manager gives the decision, but it is carried out only with the client's prior consent for each transaction.
Advisory PMS: the manager only advises. The client takes the final decision and the client executes the trade.

Think of it as a ladder of control. In discretionary PMS the manager has the most control. In advisory PMS the client has the most. Non-discretionary sits in between. In all three, the terms must be recorded in the portfolio management agreement, and the client's risk profile and objectives guide the investments.

For your exam, link each type to a simple test: who decides, who approves, who executes. Most questions can be solved with this one test.

Key formulas to remember

Discretionary PMS: Manager decides + manager executes, no per-trade approval; Manager acts on the client's behalf within the contract and client's objectives.
Non-discretionary PMS: Manager decides + client approves each transaction before it is executed; Prior consent for each deal is the key feature.
Advisory PMS: Manager advises + client decides and executes; The manager does not execute trades for the client.
PMS vs mutual fund: PMS = individual client portfolio; mutual fund = pooled units with one NAV; A PMS client holds securities directly through an individual account.
Governing document: Portfolio management agreement between manager and client; Sets out the type of service, scope, fees and risks.

How to solve Portfolio Management Services: Concept and Types questions

Use this method for any question on the concept or types of PMS.

1Read the question and mark the key phrase: who decides, who approves, who executes.
2If the manager decides and executes without asking, it is discretionary.
3If the manager decides but needs the client's consent for each trade, it is non-discretionary.
4If the client takes the final decision and executes, and the manager only gives advice, it is advisory.
5For a concept question, check whether the option talks about an individual portfolio. That points to PMS, not a pooled mutual fund.
6Eliminate options that mix features, such as 'advisory PMS where the manager executes trades'.
7Check the option against the words 'registered', 'agreement' and 'client's objectives'. Correct statements usually match these.

Quickest way: Decide-Approve-Execute test

When to use it: Use it for any scenario question that asks you to name or compare the type of PMS.

Ask: does the manager execute? If no, it is advisory.
If yes, ask: does the client approve each trade first? If yes, non-discretionary.
If no per-trade approval, it is discretionary.
Match the answer to the option, and skip options that contradict this chain.

Common mistakes in Portfolio Management Services: Concept and Types

Saying non-discretionary PMS means the client takes the decision.
The word 'non-discretionary' sounds like the manager has no say.
Fix: The manager still gives the decision. The client only approves it before execution.
Thinking advisory PMS means the manager executes trades.
Students treat all PMS types as managing the money.
Fix: In advisory PMS the manager only advises. The client decides and executes.
Treating PMS like a mutual fund with units and a single NAV.
Both are professional investment services.
Fix: PMS is an individual portfolio for each client. Mutual funds pool money and issue units.
Believing discretionary PMS means no limits on the manager.
Discretion is read as total freedom.
Fix: The manager's discretion works within the agreement and the client's stated objectives and risk profile.
Ignoring the written agreement when asked about the basis of the service.
Students focus only on the investment side.
Fix: Remember that every PMS rests on a written portfolio management agreement with the client.

Worked examples

Example 1

A portfolio manager selects stocks for a client and places the orders in the client's account without calling the client before each trade. Which type of PMS is this?

A. Advisory PMS
B. Non-discretionary PMS
C. Discretionary PMS
D. Pooled mutual fund scheme

Show the solution

Who decides? The manager.
Who executes? The manager places the orders.
Is client approval needed for each trade? No.
Manager decides and executes without per-trade approval, so it is discretionary.
Option A is wrong as the manager executes. Option B is wrong as no approval is taken. Option D is wrong as the account is an individual client account.

Answer: C. Discretionary PMS

Example 2

Which statement about non-discretionary PMS is correct?

A. The manager executes trades without consulting the client.
B. The manager gives the investment decision and trades are executed only with the client's prior consent.
C. The manager does not give any investment view.
D. The client's money is pooled into units with a single NAV.

Show the solution

Recall: non-discretionary means the manager decides but the client consents to each transaction.
Option A describes discretionary PMS, so it is wrong.
Option C describes a service with no manager view, which is not PMS, so it is wrong.
Option D describes a mutual fund, so it is wrong.
Option B matches the definition.

Answer: B

Exam tips

Reduce every type to three words: decide, approve, execute. Write them on your rough sheet at the start.
Watch for scenario questions with no type named. The clue is usually a phrase like 'with the client's prior consent' or 'client places the order'.
Expect distractors that swap the features of discretionary and non-discretionary PMS. Read both ends of the sentence.
Under 25% negative marking on NISM-Series-X-A, a wrong answer costs a quarter of the question's marks. Eliminate two options before guessing.
Study this topic with the SEBI Portfolio Managers Regulations, as questions on the types often blend with agreement and regulatory rules.

Practice questions from Portfolio Manager

Portfolio Management Services: Concept and Types in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Portfolio Management Services: Concept and Types: frequently asked questions

What is a portfolio management service in NISM terms?

It is a service by a SEBI-registered portfolio manager who manages or advises on a client's securities or funds under a written contract. Each client has an individual portfolio. The three types are discretionary, non-discretionary and advisory.

What is the difference between discretionary and non-discretionary PMS?

In discretionary PMS the manager decides and executes without asking for approval each time. In non-discretionary PMS the manager decides, but the client must give prior consent for each transaction.

Is advisory PMS the same as non-discretionary PMS?

No. In advisory PMS the manager only advises and the client takes the decision and executes it. In non-discretionary PMS the manager makes the decision and the client approves it before execution.

How is PMS different from a mutual fund?

A PMS client has an individual portfolio, so holdings and returns can differ from client to client. A mutual fund pools money from many investors into units with a single NAV.