Mutual fund is a pooled investment vehicle wherein asset management companies raise the capital from different investors. You can invest in various schemes like equity, debt, gold, etc. Mutual funds are transparent and regulated and have a fixed fee structure.
On the other hand, PMS or portfolio management services offer customisations on various model portfolios, such as large-cap and mid-cap plans. Customisations are made depending upon your requirements and goals. PMS have equity and debt choices. They also provide flexibility to the portfolio manager regarding how and when to contribute or pull your investments.
Differences between PMS and mutual funds:
- Investment size
You can start to invest in mutual funds with Rs. 500, with some platforms offering mutual fund schemes for as low as Rs. 100. The minimum amount in a PMS is currently Rs. 50 lakh, which is a significant sum for some investors.
- Tax benefits
When you invest capital in a mutual fund, the asset manager’s actions do not impact your tax liability since it is independent of the stocks they purchase or sell in the fund. Whereas for PMS, all transactions made by the asset manager will be treated as your transactions and will have tax implications.
- Additional services
With PMS, each portfolio is considered individually. This prevents others’ activities from influencing your portfolio. Mutual funds depend on rigorous administration, so asset managers must calculate the NAVs at which every investor’s money is pooled. If the financial backers pull their investments, the asset manager of a mutual fund account may liquidate by selling the most liquid stocks. This does not happen in the case of PMS.
- Accountability of investment
PMS managers are responsible for your investments and returns, whereas asset managers have no such commitments in the case of mutual funds.
- Visibility
Mutual fund companies must disclose the fund portfolio and the fund manager’s performance, as per regulations laid down by the Securities and Exchange Board of India (SEBI). Even though the PMS reveals its investment approach, which is a broad description of the type of securities it invests in, there is no detailed description of investment specifics.
Mutual fund or PMS – Which one should you opt for?
PMS is typically offered as an investment facility for high net worth individuals. With PMS, you can take your portfolio to the next level with more adaptability and more customisation. On the other hand, in mutual funds, everything depends on the NAV and the investor’s investment command.
If you are someone just setting out on your investment journey, the debate between mutual funds vs PMS can be confusing. However, mutual fund investments could be a financially sound option for you as a beginner.
With that being said, it is always better to choose an investment avenue that is in line with your financial goals, investment horizon, tolerance for risk, financial standing, and age. To make the most of your investments, it is prudent to reach out to a financial advisor who can curate financial plans that are unique to your investor profile.
