When you see news items like IPO subscribed 40 times, or 200 times do you wonder how? Or when L&T finance debentures at 8.5% p.a. gets subscribed, do you wonder why?

The answer is very simple. Merchant bankers are a nice small clique who also run PMS schemes. So when the ‘Investment Bank’ goes to get a mandate they flaunt their strength in:

a. The retail brokerage network that they have built

b. The HNI clients that they cater to and

c. The PMS services that they run.

Now all these activities actually become some kind of a backward integration for their brokerage business. Thus these clients are told – here is L&T a great company and at an attractive rate of 8.5%. Gilt is not far away at 8% – and for senior citizens there is the senior citizen yojana at 9%. Of course their own executives were busy filling up forms of Mahindra Finance which was at 9% not very long ago.

So if your PMS provider runs a full fledged business in other finance areas, you are likely to buy some of those lemons or violently churn your portfolio. If you must go to a portfolio management service what you should be looking for is:

a non broking PMS provider – whose only income is PMS fees. There are 3-4 such providers in Mumbai and you would be better off with them. One name which immediately comes to mind is Chetan Parekh of Jeetay Investments. However like all sensible people he does not offer ‘PMS’ at Rs 5 lakhs. Parag Parikh is also a PMS provider – but he perhaps runs some brokerage business as well.

In fact the financial planning business does not conflict with thePMS business. However as a planner it makes sense to stick to Index etf as a recommendation instead of pretending tobe able to find the next WIPRO or the next INFOSYS.

Let us leave that job to Vallabh Bhansali of Enam or Rakesh Jhunjhunwala of RARE to do it. Amen.