Difference Between AIF & PMS & Mutual Funds: A Definitive Guide From Our Experts

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Do you want to increase the value of your investments outside of mutual funds? Alternative Investment Funds (AIFs) and Portfolio Management Services are the best places to start (PMS). These risky investments have lately skyrocketed in favor among skilled investors looking to build wealth.

Your stock or debt assets are handled by qualified fund managers in mutual funds, Portfolio Management Services  (PMS), and alternative investment funds (AIF). These investing alternatives each have advantages and disadvantages. Your particular needs would determine the best investment vehicle for your assets. Traditional financial products like fixed deposits and mutual funds work brilliantly for regular investors. On the other hand, Portfolio Management Services  PMS and alternative investment funds AIF can be ideal for you if you are a high-net-worth individual trying to maximize your wealth and are ready to accept higher risks.

Due to their greater minimum investment requirements as compared to other investment products, PMS and AIF are both private wealth management tools targeted at HNIs. AIFs are pooled investment funds that concentrate on alternative asset classes such as real estate, private equity, hedge funds, etc. Portfolio management services focus on creating portfolios of listed securities tailored to your aims and risk profile.

To help you decide which of the three investing alternatives is best for you, we’ve highlighted the main benefits and drawbacks of each in this piece.

Mutual Fund ‘Sahi Hai’

Given their simplicity and low initial commitment requirements, mutual funds are perhaps the most popular type of investment instrument. They are also quite effective with taxes (debt funds having long-term capital gains benefits and equity funds only being taxed on redemption and not when the portfolio is changed). They are also a highly practical tool for lowering market timing risk because they may be used to conduct SIPs, STPs, and SWPs. From the standpoint of financial planning, this is quite helpful. Due to these advantages, mutual funds are a great choice for the majority of investors, even HNIs. 

The primary disadvantage of mutual funds is that their organizational design makes it difficult to provide more distinctive and high-risk-return strategies. This reduces the prospective returns of mutual fund investments when many HNIs also choose to invest in PMS or AIF strategies. Fund management changes are another risk associated with mutual funds, albeit it is significantly lower in the case of owner-managed PMS & AIF schemes. 


  • Very Small Min Investments
  • Highly Tax-Efficient
  • Ease of Operations
  • Systematic Investment / Transfer / Withdrawal Possible
  • Typically Low-risk Diversified Portfolios


  • Lower Risk leads to Lower Returns
  • Low Differentiation
  • Risk of Fund Manager Changes
  • Targeted at Retail Customers

Alternated Investment Fund

Investing in hedge funds, venture capital, futures, and private equity is done through Alternated Investment Funds, which are pooled assets. AIFs are divided into three groups based on their investing methods.

  • Category I: These funds are put to use in high-growth potential small enterprises, startups, social initiatives, early-stage ventures, angel funds, etc.
  • Category II: Investments in debt securities, funds of funds, and private equity (PE) funds fall under this category.
  • Category III: This AIF uses a variety of intricate trading tactics in an effort to provide short-term gains. Hedge funds and Private Investment in Public Equity (PIPE) Funds are examples of Category-III funds.

AIFs are more concentrated on investing in alternative investments, which are generally investment instruments other than the usual asset classes like equities and debt, as its name implies. AIFs invest in a variety of asset types, including real estate, hedge funds, and private equity.

AIFs are pooled investment funds, which is another important distinction between them and the Best PMS Of India. This means that money is gathered from several individuals and invested in the asset above classes as a whole. This may compromise some of the customization offered by portfolio management services. However, they are still a terrific method to expose oneself to other asset classes and use them as a tool for diversification.

Many extremely talented fund managers have recently left their senior investing roles at prestigious AMCs to create their own Alternated Investment Fund. Investors can have faith in the core fund management team’s long-term stability because of this. AIFs can provide investors with sophisticated and distinctive investing techniques, but they also have certain drawbacks. The majority of individual investors cannot afford AIFs because of their hefty Rs. 1 crore minimum investment requirement. 

AIFs do not provide investors the same tax benefits as mutual funds. Cat 1 and Cat 2 AIFs pay pass-through taxes (from a tax perspective, it is considered that the investor has directly invested themself). Cat 3 AIFs are taxed based on the sort of revenue at the fund level (business income, capital gains, and dividends). Certain Best AIF Of India may use trading methods that are more complicated than advisers or investors may fully comprehend. As a result, investors may decide to make investments after fully appreciating the risk-reward ratio. 


  • Possible Very Complex Strategies
  • Additional risk-reward alternatives
  • AIFs with owner management, FM Stability


  • 1 cr Min Investment
  • True Risk-Reward Relationship May Be Difficult to Understand

Portfolio Management Services

PMS is a customized investment portfolio that includes fixed income securities, unlisted securities, equities, and structured products. With a minimum ticket size of Rs. 50 lakhs, it meets high-net-worth individuals’ investing goals. PMS offers discretionary or non-discretionary professional management of your investments. In discretionary, your portfolio is managed by the fund or PMS management, who keep an eye on the market and consider your investing needs. Investors have the last say in non-discretionary, on the other hand.

You actively monitor your personalized portfolio in PMS to track developments and maximize returns. Seasoned portfolio managers handle your assets, so all you need to do is monitor the transactions on a regular basis and receive performance reports. Additionally, fund managers have freedom in their stock selection, sectoral allocation, and cash position management. These are tailored services that let you monitor your portfolio’s performance, risk exposure, and other factors. Using the knowledge of seasoned money managers is a terrific approach for HNIs to achieve alpha returns on their capital over the long term.

Since it has few regulatory and corpus obstacles, the PMS platform is the simplest investment vehicle for fund managers to start and operate distinct investment strategies. This enables a wide range of distinctive methods with variable risk-return ratios that would be appealing to more experienced investors. The PMS platforms also enable the customization of equities portfolios to match the particular needs of individual investors. 

Many highly talented fund managers have recently resigned from their prominent investing jobs at prestigious AMCs to start their own Best PMS Of India houses. Investors can have faith in the core fund management team’s long-term stability because of this. While PMSs have many benefits for investors, there are also a few significant drawbacks. The majority of ordinary investors cannot afford PMSs since the minimum investment required is Rs. 50 lakhs. PMS investments do not provide the same tax benefits as mutual funds since they are tax-pass-through vehicles (it is assumed that the investor is investing in equity shares directly).

Several PMS schemes are of extremely good quality, but there are just as many schemes of inferior quality. Due to this, it is crucial for both the investor and the adviser to have a thorough grasp of the genuine risk-reward ratio before investing. Last but not least, limitations on shorting and leverage prevent PMS houses from using the more sophisticated techniques feasible with the AIF structure. 


  • Differentiated Strategies
  • Larger range of risk-reward options
  • Customized Portfolios Possible
  • Direct Ownership of Stocks
  • FM Stability (owner-managed PMSs)


  • 50 lakh Min Investment
  • Tax Limitations
  • Short Term Schemes
  • Leverage & Shorting Not Allowed

What’s the Right Choice for You?

While PMS enables the investor to actively manage their individualized portfolio to track trends and maximize profits, Best AIF Of India provides an outlet for investors to pool money with the option to invest in derivatives, public & unlisted equity shares, and real estate, and hedge funds, etc. Since AIFs and PMS are both high-risk, high-reward securities, having a top-notch management staff is essential.

For HNIs looking to diversify their portfolios and increase long-term returns on their investments while taking on greater risk, both PMS and AIFs are excellent investment alternatives. AIFs are pooled investment vehicles, whereas PMS are more specialized portfolio management services. Each has advantages and disadvantages.

The decision between Mutual Funds, PMS, and AIF programs ultimately depends on your personal risk tolerance and financial objectives. Investors frequently invest in a mix of all three investment vehicles after determining which particular schemes best meet their needs. There may be several vehicles that are appropriate for various objective categories. 

All the Best AIF Of India and PMSs schemes in India are well understood by our investment professionals at AIF & PMS Experts India. We would be pleased to walk you through your options and assist you in determining which investment product is most suited for your particular needs. Please book a call with our expert associate to start your investment journey with some efficiency and guidance from an expert. Visit our website now or drop a mail at [email protected] or call our toll-free contact no. ‎1800 210 1995!

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