30 Apr, 2025
5 mins read
Investing in the Indian market offers many options. Two popular choices are Portfolio Management Services (PMS) and Mutual Funds. Both have unique features that suit different investor types. In this article, we will understand what mutual funds and PMS are, and the difference between mutual funds vs PMS.
PMS is a professional investment service where an expert manages your money. They invest in stocks, bonds, and other securities based on your goals and risk comfort. This service is personalised to your needs.
There are different types of PMS. In discretionary PMS, the manager makes all decisions. In non-discretionary PMS, you approve all transactions. Active PMS involves frequent changes to beat market benchmarks. Passive PMS simply follows a market index.
You need at least ₹50 lakh to invest in PMS. This high entry point limits access to wealthy and high-net-worth investors (HNI). PMS charges higher fees, typically 2-2.5% annually, plus extra for brokerage and performance. PMS providers must register with SEBI but have fewer disclosure requirements than mutual funds.
A mutual fund collects money from many investors and invests in various securities. Professional managers run the fund according to stated investment goals. When you invest in a mutual fund, you own units of the fund, not the actual securities.
Mutual funds spread risk by investing across many assets. Investment can be done with as little as ₹500. SEBI strictly regulates mutual funds. You can choose from many types of funds: equity, debt, hybrid, sector-specific, or index funds.
Mutual funds offer good liquidity. This means you can buy or sell units easily. The fund's value updates daily through its Net Asset Value (NAV). Fund managers regularly share information about holdings, performance, and fees.
|
Feature |
PMS |
Mutual Fund |
|---|---|---|
|
Minimum Investment |
₹50 lakh as mandated by SEBI, targeting affluent investors. |
As low as ₹500 for SIPs, making it accessible to all income groups. |
|
Customisation |
High personalisation with tailored portfolios based on your specific goals and risk appetite. |
Low customisation with a standardised portfolio shared among all fund investors. |
|
Investor Profile |
High-Net-Worth Individuals (HNIs), institutional investors with significant capital. |
All investor types, including beginners, retail investors, and institutional investors. |
|
Regulation |
SEBI-registered but with fewer public disclosure requirements and reporting obligations. |
Strict SEBI regulations with mandatory disclosures, greater transparency, and investor protection. |
|
Fees |
Higher costs: 2-2.5% management fee plus performance fees (typically 10-20% of profits) and brokerage charges. |
Lower costs: 0.5 - 2% expense ratio covering all management and operational expenses. |
|
Portfolio Disclosure |
Limited disclosure available only to the individual client. |
Full public disclosure of holdings, typically on a monthly basis. |
|
Risk |
Higher risk due to concentrated positions and more aggressive strategies. |
It varies by fund type, but is generally lower due to diversification requirements. |
|
Liquidity |
Lower liquidity with potential lock-in periods and exit loads. |
High liquidity with daily redemption options for open-ended funds. |
|
Aspect |
PMS |
Mutual Funds |
|---|---|---|
|
Tax Treatment |
Taxed as direct equity investments, with each transaction visible in your demat account. |
Taxed only at the time of redemption, with fund-level transactions not creating tax events. |
|
Short-term Capital Gains |
A 20% tax applies to profits from investments held for under 12 months. |
20% tax on equity fund units sold within 12 months of purchase. |
|
Long-term Capital Gains |
12.5% tax on gains from investments held for more than 12 months for capital gains over Rs 1.25 lakh in a financial year. |
12.5% tax on equity fund units held for more than 12 months for capital gains over Rs 1.25 lakh in a financial year. |
|
Tax Trigger Events |
Every buy/sell transaction executed by your portfolio manager creates a taxable event for you. |
Tax liability arises only when you redeem your units, regardless of trading within the fund. |
|
Tax Efficiency |
Lower efficiency due to frequent portfolio churn and multiple tax events throughout the year. |
Higher efficiency with fewer tax events and tax deferral until redemption. |
|
Additional Tax Burden |
Extra 1-2% tax outgo annually due to frequent trading and portfolio adjustments. |
No additional tax burden from internal fund transactions or rebalancing. |
|
Tax Reporting |
More complex tax reporting with multiple transactions to track and report. |
Simpler tax reporting with fewer transactions to manage. |
PMS offers personalised investment solutions with direct ownership of securities. Active management may lead to higher returns. You get dedicated attention, can exclude specific sectors, and access exclusive opportunities not available to retail investors. It suits those with unique investment goals.
PMS needs a minimum of ₹50 lakh. Fees are higher, which can reduce returns. Portfolios are concentrated, increasing risk. Lower regulation means less transparency. Tax filing is complex, and lock-ins limit flexibility. Performance depends on the manager’s skill, and frequent trading raises costs.
Mutual funds are affordable, starting at ₹500. They offer diversification, lower risk, and are well-regulated. Fees are low, and taxes apply only on redemption. They’re easy to buy, sell, and track. Experts manage funds with a simple, transparent process.
They lack customisation. Returns may be lower than PMS. All investors follow the same plan. You can’t pick specific assets. Large fund size can affect performance. Market trends drive returns, and some exclusive options stay out of reach.
Your choice depends on your financial situation, goals, and risk comfort. Choose PMS if you have at least ₹50 lakh to invest and want a personalised strategy. It suits you if you're comfortable with higher risk and costs, and desire direct ownership with active management.
Choose mutual funds if you're starting with a smaller amount or prefer lower risk. They work well if you value lower fees, easy liquidity, transparency, and strong regulatory oversight.
Both PMS and mutual funds offer valuable investment opportunities, but they serve different purposes. PMS provides customisation and the potential for higher returns, but requires significant investment and comes with higher costs and risks. Mutual funds offer accessibility, diversification, and simplicity but lack personalisation. Before investing, assess your financial goals, risk tolerance, and available funds. Your investment journey should align with your personal needs and comfort level.
There is no one-size-fits-all answer. PMS may offer higher returns and customisation but comes with higher risk, costs, and complexity. Mutual funds are more accessible, regulated, and suitable for most investors, especially those with smaller investment amounts or lower risk appetites.
High minimum investment requirement (₹50 lakh).
Higher management and performance fees.
Higher risk due to concentrated portfolios.
Less transparency and public reporting.
Complex tax compliance and potentially higher tax outgo
The SEBI-prescribed minimum investment for PMS in India is ₹50 lakh.
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