Can a PMS help when your mutual fund portfolio is underperforming?

An acquaintance came to me recently, frustrated. She had been investing diligently for a few years, put in over ₹1 crore, and was staring at returns of roughly 6 to 7%.

Not negative. Just not what years of disciplined equity investing should have produced.

When we sat down to look at it together, the problem wasn’t what she had invested in. A reasonable mix of equity mutual funds, diversified well enough. The intent was solid. The problem was how the portfolio had been managed.

The gap most investors don’t see

Most of us pick mutual funds the same way. We look at past returns, find something that has performed well over three to five years, and invest. That’s not entirely wrong. But it’s incomplete.

Past performance tells you what a fund did when conditions suited it. It doesn’t tell you whether the underlying stocks still hold up, whether the fund’s size has made it unwieldy, or whether it still belongs in your portfolio given where markets are today.

Then there’s allocation. How much in large-cap versus mid-cap? When markets run up sharply, do you stay fully invested or hold some back? These aren’t one-time decisions. Most investors, understandably, aren’t revisiting them. They have careers and families and enough on their plate.

What MF-based PMS actually does

Most people know PMS as a manager building you a portfolio of individual stocks. MF-based PMS works within the same regulated structure, but the underlying instruments are direct mutual funds. The portfolio manager decides which funds to hold, in what proportion, and when to rebalance.

What makes this more than “fund-of-funds” thinking is the active judgement involved. Selection is based not just on past returns but on the quality of the underlying portfolio, current valuations, AUM size, and how the fund has behaved across different market cycles.

A well-structured approach typically uses a core-and-satellite model. The core holds diversified equity funds for long-term compounding. The satellite is more tactical such as sectoral or commodity exposure, shifted based on market conditions. Outperformance in mutual funds is often driven by mid and small-cap cycles, but gains there depend heavily on entry valuations and exit discipline. That’s what active monitoring is meant to manage.

The honest part: costs and taxes

MF-based PMS adds a management fee on top of the direct plan expense ratio. All-in costs are real and worth understanding before you commit. The question to ask is whether the active oversight earns its keep over a five-plus year horizon.

Let me talk about  taxes now. Yes, every rebalance between schemes is a redemption, and capital gains tax follows. This is a structural reality of any PMS. One way to manage it is to keep turnover low. 

A disciplined PMS limits tactical allocation to a smaller share of the portfolio and avoids unnecessary switching, which means short-term capital gains rarely arise if the structure is well-designed.

Coming to performance fees, frankly they only make sense with a hurdle rate. Beating 0 doesn’t count. Look for one where the fee kicks in only above a defined return threshold that aligns with your expectations.

Is this right for you?

A disciplined investor with a flat-fee advisor and four to six well-chosen equity funds can absolutely manage this themselves. MF-based PMS is not a substitute for that. It’s for someone who has the corpus, the horizon, and the willingness to delegate but wants more than a self-managed collection of funds with no governing logic.

The minimum is ₹50 lakh. The horizon should be at least five years and the fees should be explicit, not buried.

If you have a substantial corpus and have been feeling like your portfolio is doing “okay” when it should be doing better, it’s worth understanding what you’re actually paying for and exploring whether a more structured approach would change the result.

Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. The indices quoted are for illustration only and are not recommendatory.
The views expressed here are the author’s own and do not necessarily reflect Scripbox’s official position. Investments are subject to market risks. Please read all related documents carefully before investing. Past performance is not indicative of future results. PMS Registration No. INP000001660.