Independent portfolio managers, brokerage firms and AMCs offer Portfolio Management Service (PMS) as well. Many people are familiar with the mutual fund schemes of Asset Management Companies (AMCs). Like mutual funds, PMS are customised investments keeping the risk capacities of the investors in mind. Keep reading to understand pms vs mutual funds!
A portfolio manager offers Portfolio Management Service or PMS as an investment service, where an investor gets the opportunity to tailor their portfolios according to their financial goals and personal preferences. Investing in PMS means investors can own bonds or shares in their names. However, in mutual funds, investors can own only the fund units of the scheme.
Portfolio management services can be of two types − non-discretionary and discretionary. In the case of non-discretionary PMS, the manager gives investment suggestions to the investors. After getting approval from the investors, the manager initiates the trade on their behalf.
Under discretionary PMS, the manager selects bonds and stocks as well as the time of purchasing the units based on his preference. Most of India’s Portfolio Management Services are of this type and are inclined towards overseeing equity-related portfolios.
All entities providing portfolio management services charge different types of commissions and fees for their services. The charges are decided at the time of investment and may vary from one PMS provider to another. The types of charges associated with PMS are as follows:
Mutual funds are investments made in different types of bonds, stocks and other securities. An AMC or mutual fund company accumulates money from different investors and invests in various securities. There are various companies to invest in hence the risk is low due to a diverse portfolio. Each mutual fund scheme has a dedicated fund manager responsible for analysing and investing in securities using the pooled wealth. These securities can be stocks, gold, and fixed-income securities such as bonds, commercial papers, and treasury bills.
Mutual funds can be categorised into various types based on asset class and structure.
Other types of mutual funds include solution-oriented schemes, index funds, fund of funds, etc.
The following parameters will help you understand the difference between PMS vs mutual funds:
Also read: Lump Sum Investment in Mutual Funds
Both PMS and mutual funds are attractive investment options that offer lucrative returns. Here are the primary differences between the two, which will help you understand which one you should choose:
|Portfolio Management Service (PMS)||Mutual Funds|
|PMS is a professional service offered to an investor by experienced portfolio managers.||It is a professionally managed fund that pools money from different investors.|
|PMS requires a minimum investment of 50 lakh.||You can start a mutual fund investment with an amount as low as Rs. 100 per month.|
|The portfolio can be customised as per the investor’s risk profile and financial requirements.||Investments in a mutual fund cannot be customised as per the individual needs of an investor.|
|All transactions carried out by the portfolio managers are treated as your own and you will be liable to pay capital gains tax.||All transactions carried out by the fund manager are not treated as your own.|
|A PMS is not required to disclose portfolio details to the regulatory agencies. It is a private association between the portfolio manager and the investor.||Mutual funds are subject to rigorous regulations and scrutiny by SEBI.|
If an individual wish to invest in PMS, he/she needs to consider the following parameters:
The following are the different aspects that one should take into account while investing in different mutual fund schemes:
An individual must pick a well-informed fund manager and a suitable fund for PMS investment. Investors need to determine whether the PMS investment models can beat the mutual fund returns. A PMS can be an ideal option for high net worth investors, while retail investors can consider mutual funds.
Mutual fund schemes, such as Navi Large & Mid-cap Fund, enable investment in India’s best 200 companies via SIP and lump-sum mode. This scheme is a mix of aggressive mid-cap and stable large-cap companies. An individual can start investing in Navi through Paytm Money, Groww and Zerodha. Research before investing!
Ans: A portfolio manager is an individual who makes an agreement with an investor and directs, advises and executes investments on the investor’s behalf. He primarily handles day-to-day asset management, manages a client’s portfolio and executes investment strategies.
Ans: Net Asset Value (NAV) denotes the per unit market value of a mutual fund scheme’s securities. It signifies the price of each share held in a particular fund.
NAV = (Total Assets – Total Expenses and Liabilities) ÷ Number of fund units outstanding
Ans: Once individuals decide to invest, they transfer their stocks/money to PMS accounts. Depending on the client’s investment objective, the fund manager generates a portfolio of stocks.
The fund house maintains this portfolio under a Demat account, registered either in the name of the client or the manager. If investors wish to suspend their accounts, they can transfer back their stocks.
Ans: Body corporates, sole proprietorship firms, partnership firms, Hindu Undivided Families (HUFs) and individuals can invest through PMS. However, the investment solutions are meant for high-net-worth clients. Individuals who prefer a personalised service for a long-term investment horizon can choose PMS.
Ans: An Asset Management Company charges a fee to an investor if he leaves a fund scheme before a pre-decided tenure. Fund houses levy exit loads to demotivate investors from redeeming fund units before a specific date.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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