Risk management

PMS risk management: position sizing (max % per name), stop-losses (where applicable), drawdown management (e.g., trim equity if portfolio drawdown exceeds 25%). Operational risks: liquidity (small-cap exposure may be hard to exit), valuation (mark-to-market consistency), custody (segregation of client assets at custodian).

Position sizing rules: max 10-15% per name; 30-40% per sector; 50% in top-10 names. Stop-losses: not mandatory, but trailing stops on individual names common in PMS. Drawdown management: dynamic allocation reduction (e.g., move 10% from equity to debt if drawdown exceeds X) — this protects clients but adds market-timing risk. Liquidity: positions in mid/small-caps may take days to exit at fair price; PM must factor this into position sizing. Valuation: independent custodian valuation overrides PM's mark; daily MTM is industry standard. Custody: client assets held at SEBI-registered custodian, separate from PMS firm.

A nuanced risk: the "concentration spiral". As a position appreciates, it becomes a larger weight; if not actively trimmed, the portfolio becomes increasingly concentrated and vulnerable to a single name correcting. Disciplined PMs trim winners; emotional PMs let them run. This single discipline produces large performance dispersion among PMS funds with similar mandates. Sophisticated allocators ask managers: "tell me about a position you trimmed despite continued conviction" — answer reveals discipline.