Apart from direct investing in financial markets, you have indirect routes like mutual funds or portfolio management services (PMS) through which you can capitalize your money into stocks or various other financial instruments. Mutual funds are generally the more popular investment option that people prefer, while PMS is less commonly chosen, especially among individuals and small retail investors.
In fact, PMS is different from mutual funds and only few investors choose that. Though, both are some of the best wealth management tools providing their customers with the best investment service with the highest returns in terms of investing in various financial instruments. If you are looking to choose any one of them, you need to understand both of them and decide which one is best for you.
What is Mutual Fund Investment?
Mutual funds are pools of money of various investors collected to invest in the various types of securities to offer balanced returns. Mutual fund houses and assets management companies (AMCs) usually offer mutual fund investment schemes to investors through various online platforms or through brokers. There could be different types of funds and the fund managers manage the entire fund.
There could be an open-ended fund or close-ended fund with a minimum amount of investment starting with Rs 500 and further into multiples. You can choose from equity, debt or hybrid funds that have been designed for different types of investors as per their risk profile and reward expectations. You can invest in mutual funds monthly through SIP or lump sum as per your investing capabilities.
What is Portfolio Management Services?
Portfolio Management Services or PMS is a personalised as well as customized investment service to manage the portfolio of individual investors mainly for high net worth individuals (HNIs). Under PMS, a portfolio manager is designated by the AMC to manage the portfolio of such investors as per their investment objectives and risk profile. Depending on the type of PMS a portfolio manager might have the authority or not to buy or sell the securities to manage the portfolio of their customers.
A portfolio manager also provides the personal advice to their clients to invest or liquidate their investments. The minimum investment in PMS is very high, hence the PMS Service charge fees and commissions to provide this service can vary depending on the performance and corpus of the fund. PMS is different from mutual funds in terms of various factors that are tabled below.
Difference between Mutual Funds and PMS
Both are asset management investment services with the motive to provide their clients maximum returns on their investment at the lowest cost and risk factors. Mutual funds in not a personalised service like PMS but minimum investment in PMS starts with millions of rupees. To help you understand better, we have highlighted the key differences between the two to make comparison easier for you.
Mutual Fund vs PMS Comparison:
| Aspects | Mutual Funds | Portfolio Management Services (PMS) |
| Definition | It is a type of fund offered through investment schemes to the investors to collect money and invest in various financial instruments like equities, bonds and types of investable securities. | It is simply a type of fund managing and advisory service to manage the funds of individual investors looking to invest in various types of investable securities like equities or debts etc. |
| Management | Managed by the fund managers to manage the entire funds of all investors collectively with various investment strategies to maximize the returns and minimize the impact of various types of risks. | The fund is managed by a portfolio manager, who is not only responsible for managing the funds of his individual customers but also involved in other activities like the advisory and sale or purchase of securities. |
| Investor’s Profile | This investment scheme service is available for all types of investors. | This service is available only for the High-net-worth Individuals (HNIs). |
| Customization | The service is predefined, you can just choose the types of funds with entry and exit options. | A fully customised service to take advice or choose the types of investable securities or liquidate. |
| Minimum Investment | Here the minimum investment required to start this service is Rs 500 only. | To use this service you need a minimum investment amount of Rs. 50 lakh. |
| Investment Types | Here you can choose from open-ended or close-ended types of funds with the facility to invest in equity funds, debt funds or hybrid funds. | Here you can choose the PMS based on market cap, large cap, mid or small cap that could be discretionary, non-discretionary or advisory. |
| Types of Assets | In these types of funds equities, debts, derivatives, gold and commodities are the popular securities. | Here apart from stocks, bonds, commodities and other securities, mutual fund units are also included. |
| Securities Owner | Individual investors are owners of their mutual units only, but not of any securities included in the fund. | Here the individual investor is the owner of each securities included in the portfolio managed by the PMS. |
| Liquidity Levels | After certain duration of lock-in-period, you can easily exit or liquidate your funds, but early exit can attract higher taxation with an exit load charges by AMCs. | The liquidity levels in PMS are also very high, withdrawing your funds early may attract high taxation under STGC with higher exit load charges. |
| Return Prospects | However, the returns on investments are highly dependent on the performance of different types of securities including the mutual fund schemes that are based on the market conditions. However, mutual funds have outperformed the PMS and major market indices. | Same here, the returns prospects in PMS are mainly dependent on the performance of the securities included in the portfolio and investment strategies of PMS Managers. Generally compared to mutual funds, the rate of returns in PMS could be less than mutual funds. |
| Transparency Levels | The level of transparency investing in such funds is low, as you get only periodical (monthly/quarterly) reports of change in the assets allocation in the funds you have invested with no detailed information or control to choose the securities or assets as per your discretion. | Here the transparency level is very high as you get the detailed information of all your investments with securities allocation with regularly updates to you. Here you can also choose or change the securities in your portfolio as per your desired allocation ratios. |
Recommended Read: How to Create a Portfolio in Share Market?
Conclusion: PMS or Mutual Fund which is Better?
Mutual funds and PMS both could be the best alternatives for investment in the stock market and various securities backed by experienced fund managers. However, you can easily start investing in mutual fund schemes merely having Rs 500, with the flexibility to choose the SIP or invest in a lump sum amount. While in PMS, you should have a minimum corpus of Rs 50 lakh to choose the PMS offered by the AMCs.
However, in mutual funds, you don’t have control over the securities included in your fund and you can buy or sell the mutual fund units with low transparency of asset allocation. While in PMS, apart from portfolio managers’ advisory, you can also choose your securities or allocation of assets. PMS is suitable for HNI investors, and mutual funds are suitable for all types of investors, mainly for the retail individual investors who have limited funds and lack of knowledge of investing in such assets to get the best returns.
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