How long should I give a new PMS allocation before evaluating exit?

Minimum 3 years to evaluate strategy through partial market cycle. Premature exit (under 18 months) often reflects investor anxiety rather than manager underperformance. The exception is if a clear trigger (PM departure, strategy drift, regulatory issue) emerges in the first 18 months — these warrant exit regardless of duration.

How do I avoid tax inefficiency when exiting a PMS?

Plan exit across 2-3 financial years. Use the ₹1.25 lakh annual equity LTCG exemption per FY by staggering redemptions. Offset realised STCG/LTCG with STCL/LTCL from other holdings (booked at year-end). Coordinate with your CA. The tax-optimisation can save 1-2% of exit proceeds in many cases — meaningful at PMS-tier wealth.

Can I switch from one PMS to another within the same AMC?

Most AMCs require redemption from one PMS strategy and fresh subscription to another, even within the same AMC. This creates a tax event (like an exit and re-entry). Some AMCs offer "intra-AMC switch" mechanisms with reduced friction; check the AMC's offering. Tax treatment is the same regardless.

PMS Advanced — Manager Risk, Performance Attribution & Exit Decisions (2/3)

Topic 2 of 3~5 min read

When to Exit a PMS — Decision Framework

Definition

Exit decisions for PMS allocations follow five triggers: persistent net-of-fee underperformance over 3+ years, strategy drift from stated mandate, senior PM departure, regulatory or operational integrity failure, and material change in investor circumstances (wealth, horizon, goals). Exit must be planned with tax and operational factors in mind — not made reactively.

In Simple Words

Persistent net-of-fee underperformance: the most common exit trigger. If a PMS has not generated meaningful net alpha over rolling 3-year windows (and gross alpha attribution shows no recovery path), continued allocation is no longer justified. Exit and redeploy. Strategy drift: a large-cap quality PMS now holding 35%+ in mid-caps, or a sector-rotation PMS staying static for 6+ quarters, signals strategy abandonment. The investor allocated to the original mandate; if the manager has changed approach, the allocation no longer matches the investor's portfolio gap. Senior PM departure: the lead PM exiting (especially with a substantial team) eliminates the skill that justified empanelment. Even if the AMC continues operating the strategy, the new team takes 2-3 years to demonstrate skill — too long to wait for an existing allocation. Regulatory or operational integrity failure: SEBI/APMI advisory or enforcement, recurring quarterly statement delays, custodian issues, audit-quality problems. These are immediate de-empanelment triggers; client allocations should exit promptly even at marginal tax cost. Investor circumstance change: an investor approaching retirement may need to reduce equity volatility, shifting from concentrated PMS to diversified mutual funds. Or a client crossing the family-office wealth tier may want to shift PMS allocation into AIF for higher portfolio efficiency. Exit planning: tax-loss harvesting opportunities at year-end can offset gains in other holdings; coordinating exit timing with concentrated tax events optimises post-tax outcomes. Trustner's annual review explicitly addresses each PMS allocation against these five exit triggers; any single trigger meeting a high-confidence threshold initiates a structured exit conversation with the client.

Real-Life Scenario

Three exit decisions illustrating the framework. Case 1: A quality PMS allocation of ₹75 lakh, 4-year track record, generated -1.5% rolling 3-year net alpha. Trigger: persistent net underperformance. Decision: exit and redeploy across 2 mutual funds + new PMS. Tax: ₹2.5 lakh STCG generated; offset against ₹3 lakh STCL from other holdings. Net tax impact: minimal. Case 2: A multi-cap PMS where the lead PM departed 6 months ago. Trigger: senior departure. Decision: gradual exit over 3 quarters allowing capital gains realisation across two financial years to optimise tax. New allocation deployed to alternative empanelled PMS. Case 3: A small-mid cap PMS allocation where the investor (now 62) is nearing retirement. Trigger: investor circumstance change (reduced volatility tolerance). Decision: phased exit over 12 months into balanced mutual funds. Tax planning: spread realisation across two FYs to use ₹1.25 lakh annual exemption efficiently.

Key Points to Remember

Five exit triggers: persistent net underperformance, strategy drift, PM departure, regulatory/operational integrity, investor circumstance change.

Persistent net-of-fee underperformance over 3+ years = primary exit trigger.

Strategy drift identified through quarterly position reviews.

Senior PM departure: even continued AMC operation cannot replicate prior team skill.

Regulatory/operational integrity = immediate exit at marginal tax cost.

Investor circumstance change: age, wealth, horizon, goals.

Tax planning: time exits to use annual exemption and offset losses.

Trustner's annual review addresses each PMS against these five triggers.

Frequently Asked Questions

Test Your Knowledge

3 questions to check your understanding

Question 1 of 3Score: 0/0

The most common PMS exit trigger is:

Summary Notes

Five exit triggers: net underperformance, drift, PM departure, integrity, investor change.

Plan exits with tax + operational coordination.

Spread across FYs for ₹1.25 lakh exemption efficiency.

Trustner's annual review explicitly addresses exit decisions.