5 Things You Must Keep In Mind Before Choosing Between Mutual Fund and PMS

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PMS is an investing service provided by a portfolio manager that allows investors to customise a portfolio based on their particular tastes and financial objectives. Unlike a mutual fund investor, who owns units of a mutual fund scheme, when investors invest in PMS, they hold shares or bonds in their name.

Two Types

Typically, PMS products are divided into two categories: discretionary and non-discretionary. In a discretionary PMS, the portfolio manager selects stocks and bonds and the time of their purchase, depending on their discretion (and hence the name). The vast majority of PMS in India are of this sort, emphasising managing equity-based portfolios. The portfolio manager in a non-discretionary portfolio and asset management that offers investment ideas to the investor. The portfolio manager conducts the deal on behalf of the investor after he has given his consent.

One needs to consider the criterion below before deciding to go for a PMS:

Minimum Portfolio Size

According to SEBI norms, PMS must have a minimum portfolio size of Rs 50 lakh. As an investor, you don’t want to put all your eggs in one basket, so spread your bets across three to four PMS suppliers. To justify investing in a PMS, your portfolio size should be about Rs 1 crore (assuming you invest Rs 50 lakh in four PMS providers).

Cost Element

PMS providers typically charge between 2% and 2.5% of the portfolio yearly, with the amount varying depending on the size of the portfolio. The lower the costs, the larger the portfolio. There are some optional incentive-based charges that increase total prices. For example, the portfolio manager may charge a fee of 15% of earnings beyond Rs 50 lakh. It might also be connected to ‘excess’ returns that exceed a pre-determined level. There may also be other expenses like audit fees, brokerage fees, stamp duty, custodian, Demat, etc.

Track Record

The quality of data available in the public domain is insufficient to assess portfolio managers’ performance. To begin with, we only have data for a short period (from January 2013), which barely spans numerous market cycles. Furthermore, the performance statistics supplied by PMS portfolio managers reflects the aggregate returns of all of their investors and the success of its model portfolio. While some have a stellar track record, it is critical to conduct the essential due diligence.

Tax Implication

An investor who sells an equity-oriented fund after a year is subject to a 10% long-term capital gains tax. However, its fund manager is free to sell and purchase equities as much as he wants without any tax consequences for his clients. In contrast, because an investment portfolio management service is directly held by its investors, each sale or purchase of equities in the portfolio results in taxes. Keep this criterion in mind and you’ll be prepared for the tax implications before investing.


There are various safeguards to protect individual investors’ holdings under mutual fund laws. A single stock, for example, cannot account for more than 10% of an equity fund’s portfolio. On the other hand, a PMS portfolio manager may build a concentrated portfolio by investing disproportionate amounts in enticing possibilities. Similarly, if the portfolio manager believes the market is hot and weak, they might go completely cash.

To invest in PMS, you’ll need a sizable portfolio. Retail investors can find proper pieces of information and statistics available in the domain both for PMS and Mutual funds. They just need to run a thorough research on and all will be good.

About AIF & PMS Experts

We are a firm that focuses on multi-asset Alternative Investments. Portfolio Management Services, Public Equity (listed and unlisted), Venture Capital, Private Debt Structured Products, and Real Estate Alternative Investments are some of our core services. We are experts here in PMS to help you to choose wise options at investing. We provide the best managed portfolio services possible.

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