PMS vs Mutual Fund: Which Investment is Right for You

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There are many ways to invest in the equity markets today. If you prefer not to invest directly in the stock market through trading, you can consider investing in mutual funds or Portfolio Management Services (PMS). With both forms of investment channels, you have a manager who takes care of your investments and may advise you on the securities to invest in depending on market conditions. 

Consequently, in both kinds of investment avenues, you have a lot less work to do as an investor as there are market professionals to help you. Nonetheless, how do you decide between PMS vs mutual funds? It is worth finding out about both investment avenues and then making decisions. 

Highlights

  • Understanding PMS
  • Understanding Mutual Funds
  • PMS vs Mutual Funds

Understanding PMS

PMS stands for Portfolio Management Services and is a service of investment in securities offered to you by financial institutions such as banks. Essentially, while discussing PMS vs mutual funds, you must understand what Portfolio Management Services entail as the two kinds of investment may seem similar, but are quite different. 

Portfolio Management Services are more of a service offered to an individual investor, taking into account the investor’s unique financial goals and requirements. It is a customised investment option and is usually offered to HNIs (high-net-worth) individuals. The service is also offered to institutional investors. 

An individual known as a portfolio manager manages the client’s portfolio based on the client’s risk appetite, preferences, and investment aims. The portfolio manager may invest the client’s capital at their discretion and they can purchase and sell securities as they see fit, to maximise returns. Here, the portfolio manager does not have to seek the client’s approval each time a transaction is undertaken. However, there are PMS offered in which the financial professional only advises clients on their investments, without making any actual investments on their behalf. A fee is charged for PMS, and this may be variable or fixed. Additionally, the fee may also be based on the performance of the investment. 

Understanding Mutual Funds

You must have heard of mutual funds as they are popular channels of investment these days. Nonetheless, you should know some important distinctions between PMS vs mutual funds to gain clarity before you invest. 

Mutual funds could be referred to as a collective investment avenue in which capital from many investors is pooled together to invest in securities. In mutual funds, you get potential returns on the basis of the amount of your investment in the pool. Mutual funds may invest your capital in a diversified collection of securities depending on your risk appetite and other financial preferences. Mutual funds may invest in securities like bonds, government securities, debt securities, gold, stocks, or a combination of these, aligned with your needs. 

A mutual fund is managed by a professional mutual fund manager who runs the fund based on a prefixed investment goal and strategy. Investors are charged an expense ratio for operational costs and the management of a fund. In mutual funds, you may choose many types suited to your financial requirements, including equity funds, debt funds, and hybrid funds. 

PMS vs Mutual Funds

The differences between PMS and mutual funds must be carefully looked into before you invest, so you make the right choice while investing. Here are the distinctions between PMS and mutual funds, based on relevant criteria: 

  • Size of the Portfolio

For the PMS investing option, the minimum portfolio size, in monetary terms, as mandated by the Securities and Exchange Board of India (SEBI) must be ₹50 lakh or more. The reason for this is that SEBI does not wish for small investors to make investments in high-risk products. On the other hand, when you are considering a mutual fund investment, you can start by investing small amounts, the minimum of which could be ₹500 for some mutual funds. 

  • Investor Suitability

A deciding factor for investors in PMS vs mutual funds may be the size of the portfolio, and this relates to the kinds of investors suited to each investment channel. PMS may be considered by HNIs who have a huge capital surplus to invest. Mutual funds, on the other hand, may suit any kind of investor. 

  • Flexibility in Investment

PMS is a more tailor-made service than an investment in a mutual fund. The portfolio manager in PMS customises a portfolio to meet an individual’s financial preferences. Although you can select a mutual fund according to your risk profile and financial goals, the mutual fund you opt for has a predefined group of securities so there is not much room to customise the fund in this regard, since there is a pool of investors that subscribe to the same mutual fund.

  • Investment Accounts

Another important point of distinction while speaking about PMS vs mutual funds is that, in PMS, the portfolio and the securities thereof are in the name of the PMS account holder/investor. In mutual funds, investors hold units in the fund, and securities are not in their name per se. 

  • Transparency

With PMS, you get regular updates on your portfolio and may make changes as per the suggestions of and discussions with your portfolio manager. With mutual funds, there could be said to be less transparency in this regard, as the fund manager only lets you know about the total holdings in the portfolio, plus performance periodically. 

Know the Differences

PMS vs mutual funds may be explored by you before you make your final investment decisions. Besides the differences between the two, PMS offers you the current market value of your portfolio, whereas mutual funds give you the NAV or net asset value of the scheme. It is important to consider your distinct investor profile and financial goals before you invest.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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