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Mutual funds are trust-developed investments that pool money from investors and then invest in assets like stocks, bonds, or other securities. It creates a diversified portfolio per the fund's investment strategy and guidelines. Here, professional managers manage this fund and enable various investment options (like SIP or lump sum) for investors. So, if a person wants to invest in mutual funds, they can buy units in that fund and receive yields in return.
Portfolio management services (also PMS) are professionally managed services where dedicated SEBI-registered portfolio managers work to handle clients' investments within the portfolio. In short, these experienced fund managers use their acquired skills and knowledge to guide the portfolio in the desired direction.
Here, the PMS portfolio usually includes a mix of multiple assets like stocks, bonds, mutual funds, and other securities. Specific to your goals, risk profile, and appetite, they will tailor the portfolio and make the required changes. Likewise, when needed (during volatile times), they might rebalance the portfolio with certain adjustments. However, the level of control and ownership provided decides the final investment decision.
The following table explains the difference between PMS and mutual funds in a simplified format.
| Difference | Mutual Fund | PMS |
|---|---|---|
| Structure | MF refers to the pooling of funds for investment. | PMS is a professional service provided to investors for managing individual portfolios. |
| Customization | It is not customizable and remains the same portfolio for all investors. Instead, you can choose the mutual fund type and invest. | Customizable and tailored to match investors' goals and risk appetite. |
| Transparency | Here, the portfolio is disclosed monthly. | Investors can get real-time or regular, detailed portfolio updates available on the portal. |
| Minimum investment or Portfolio size | The minimum investment can range from ₹250 (via SIP) and up to ₹30,000 or more (lumpsum amount). | As per SEBI Guidelines, the minimum investment in PMS is ₹50 lakhs. |
| Types | Based on the load, it includes open-ended and closed-end funds. Likewise, the other types of asset classes are equity, debt, and hybrid categories. | There are three major types of PMS: discretionary, non-discretionary, and advisory PMS. |
| Fee structure | It includes exit load, transaction charges, and expense ratio (usually 0.5%–2.5%). | The fee structure for PMS is structured into fixed fees, performance-based fees, and hybrid fees. |
| Asset class composition | Equity (like stocks), bonds, and even gold as securities. | Stocks, bonds, debt, and other securities. |
| Ownership of securities | Mutual funds act as trusts. Hence, investors do not directly own the securities but are a part of them. | In the PMS, investors have direct ownership of the assets held. |
| Liquidity | MFs hold more liquidity than PMS and allow instant withdrawal from the fund (but with exit load and transaction charges). | Offers similar liquidity as MF unless any strategy is designed that might require more days to exit. |
| Fund manager access | There is limited access for the manager over the individual investments made. | Easy accessibility to interact with the fund manager due to the limited number of clients. |
Both PMS and MF have their pros and cons at the investment level. However, at an investor’s level, portfolio management services offer the added advantage of customization, which is not available for Mutual Funds (MFs). It enables easy interaction with the manager to decide on the PMS strategies. Based on your investment needs, goals, and risk tolerance level, the portfolio manager will tailor your portfolio to meet your specific requirements. Additionally, they will assist you in developing a focused strategy that targets fifteen to twenty companies, tailored to investor’s appetite.
Comparatively, there is high transparency and professional management present in these services. While the PMS caters to the High Net Worth Individuals (HNIs) category, the latter do not demand such. Therefore, before selecting any investment service, consider the individual's investment needs, risk tolerance, and the level of involvement required.
When comparing PMS vs. Mutual Funds, the right choice depends on a person's financial goals and investment capacity. Both offer several advantages and disadvantages, but the final choice depends on individual requirements. Additionally, understanding the types, fees involved, strategies employed, and the taxation implications can help you make better investment choices.
