PMS investment approach and strategies
PMS sells investment approaches, not schemes, and each one is tagged to one of four Strategies.
An investment approach is the documented investment philosophy a portfolio manager follows for a client's money: what it buys, why, in what mix and against which benchmark. It is what a PMS sells in place of a mutual fund 'scheme', and SEBI requires it to be described the same way in every document a client or regulator sees.
A SEBI circular of December 2022 added a layer above it: every investment approach is tagged to one of four broad Strategies, so that clients can compare like with like across managers.
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Key terms
- Investment Approach (IA)
- SEBI's definition: 'the documented investment philosophy to be adopted by the Portfolio Managers while managing the client funds in order to achieve client's investment objectives.' A manager can run several, for example a large-cap approach and a multi-cap approach.
- Strategy
- A broader layer above the IA. There are exactly four: Equity, Debt, Hybrid and Multi Asset.
- Tagging
- Linking each IA to one, and only one, Strategy, and choosing one benchmark for it from those APMI prescribes for that Strategy (at most three per Strategy).
What every investment approach description must contain
Paragraph 4.6.2 of SEBI's master circular lists these, at a minimum:
- checkInvestment objective
- checkTypes of securities, for example equity or debt, listed or unlisted, convertibles
- checkThe basis for selecting those securities
- checkAllocation across types of securities
- checkAn appropriate benchmark and the reason for choosing it
- checkIndicative tenure or investment horizon
- checkRisks of the approach
- checkOther salient features
One manager, three approaches
An illustrative manager and how its approaches would be tagged.
Focused Mid-cap
What it holds
20-25 listed mid-cap stocks
Strategy tag
Equity
Corporate Bond Ladder
What it holds
Rated listed bonds held to maturity
Strategy tag
Debt
Balanced Advantage
What it holds
Equity and debt in a varying mix
Strategy tag
Hybrid
| Investment approach | What it holds | Strategy tag |
|---|---|---|
| Focused Mid-cap | 20-25 listed mid-cap stocks | Equity |
| Corporate Bond Ladder | Rated listed bonds held to maturity | Debt |
| Balanced Advantage | Equity and debt in a varying mix | Hybrid |
Free account, this exam preselected.
Rules that protect the client
The investment approach must read the same in the Disclosure Document, client reports, marketing material and the reports filed with SEBI. A manager cannot pitch 'Focused Mid-cap' to a client and report it to SEBI under a different description. Nor may it present its approaches as 'schemes' like a mutual fund.
A change in the approaches a manager offers is a material change to its Disclosure Document. Under SEBI's September 2025 circular on the Disclosure Document format, changed pages must be sent to clients, put on the manager's website and filed with SEBI within 7 working days. Any change in approach that could affect a client's performance must also be disclosed in marketing material.
Moving an approach to a different Strategy or benchmark needs an exit offer to existing clients first. The benchmark page covers when and how a tag or benchmark can change.
Using the IA in a client conversation
Read the IA description against the client's investment policy statement before you recommend it. A client with a three-year horizon and low tolerance for drawdowns does not belong in an approach whose stated horizon is five years and whose listed risks include concentration. If a manager's actual portfolio drifts from what the IA says, that is style drift, and it is your cue to raise questions.
How XXI-A tests this
Expect recall questions on the four Strategies (a distractor like 'Thematic' or 'Small-cap' is not one), on the 'one IA, one Strategy' rule (a manager may tag many IAs to one Strategy, but never one IA to two), and on the maximum of three benchmarks per Strategy.
FAQs
What is an investment approach in PMS?expand_more
The documented investment philosophy a portfolio manager follows for client money, covering objective, securities, selection basis, allocation, benchmark, horizon and risks. It replaces the idea of a 'scheme' in PMS.
What are the four PMS strategies?expand_more
Equity, Debt, Hybrid and Multi Asset. Every investment approach is tagged to exactly one of them.
Can one investment approach be tagged to two strategies?expand_more
No. Each investment approach is tagged to one and only one Strategy, though several approaches can share a Strategy.