PMS Returns in India: How to Measure and Compare Performance

Updated on 7 May, 2025

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In India, many affluent investors select PMS for professional oversight and customised financial strategies. As of December 31, 2024, the Indian PMS managed assets of around ₹37.06 lakh crore, serving 1,84,400 discretionary clients and 6,161 non-discretionary clients.

Though PMS has been around since the early 2000s, most providers have gained prominence only in the last decade. The surge in India’s wealthy investor base and their preference for personalised portfolios has fuelled rapid growth in the PMS space.

PMS provides investors with structured portfolio management; however, what are PMS returns, and how can one effectively assess performance?

This article explores PMS returns and calculation methods, and compares top-performing PMS strategies to help investors make informed selections.

What are PMS returns?

PMS returns are the financial gains or losses from actively managed portfolios tailored to each investor’s investment goals. These returns show a portfolio manager’s ability to optimise investments over time.

PMS returns in India are driven by active portfolio management to outperform traditional investments.

How are PMS investment returns calculated?

In India, PMS returns are typically calculated using these key methods:

Absolute Returns: Denote the aggregate percentage increase or decrease from the initial investment.
Compound Annual Growth Rate (CAGR): A compounded annualised average growth rate throughout an investment period.
Extended Internal Rate of Return (XIRR): A precise measure for portfolios with irregular cash flows that accounts for multiple cash inflows and outflows.

Key Metrics for PMS Performance Comparison in India

Investors can effectively compare and evaluate PMS by comprehending these critical metrics for a thorough PMS performance comparison in India:

1. Risk-Adjusted Returns: Shows how much a portfolio management service earns given its risk. A higher Sharpe or Treynor ratio suggests better returns than risk.

2. Volatility (Stability of Returns): Shows PMS return volatility. Less volatile returns are safer, whereas more variable ones are riskier.

3. Maximum Drawdown: The biggest market downturn portfolio value drop. Helps assess the greatest danger before recuperation.

4. Alpha (Outperformance vs. Market): Shows how much the PMS outperforms a benchmark like the Nifty 50. A positive alpha means the fund manager creates value.

5. Beta (Market Sensitivity): Measures PMS portfolio volatility relative to the market. Below 1 indicates lower volatility than the market, while above 1 indicates higher volatility.

6. Benchmark Comparison: PMS returns should be compared to the Nifty 50 or BSE Sensex. Surpassing the benchmark shows good management.

7. Tax Efficiency: Certain PMS strategies are more tax-efficient than others. Dividend-focused strategies and decreased attrition can mitigate tax burdens on returns.

Factors Influencing PMS Investment Returns

Multiple factors that affect PMS returns in India can affect an investment portfolio’s success. Investors seeking maximum returns must comprehend these aspects.

1. Market Conditions

Inflation, GDP, and employment affect PMS returns. Positive economic advances increase investor confidence and rewards. Negative conditions might backfire.

2. Risk Management

Effective risk management calls for both asset class and sector diversity. Applying risk assessment and mitigating strategies helps portfolios stay free from major losses during market declines.

3. Taxes

Capital gains and dividend taxes affect net returns. Understanding and preparing for these taxes is necessary for accurate performance evaluation.

4. Investment Horizon

Investment duration affects investment returns. By investing longer, portfolios may recover from short-term volatility and benefit from long-term growth.

5. Liquidity constraints

The ease of cashing out investments affects portfolio flexibility. Investments in less liquid assets may lower returns, which can be difficult during financial emergencies.

PMS Returns vs. Other Investment Options

A PMS returns comparison with mutual funds and fixed deposits shows investor risk, liquidity, and long-term gains.

PMS vs. Mutual Funds

Returns: While some PMS strategies have delivered higher returns than select mutual funds over certain periods, past performance varies significantly by provider and strategy. SEBI cautions that past performance does not guarantee future results, and comparative advertisements must avoid unsubstantiated claims.
Customisation: PMS portfolios are tailored to individual financial goals, while mutual funds are standardised.
Risk and Accessibility: PMSs are often riskier and need a minimum investment of ₹50 lakh, making them ideal for wealthy persons. Mutual funds are accessible to a wider investor base, with minimum investments starting at ₹100.

PMS Vs. Fixed Deposits

Returns: PMS may offer greater returns than fixed deposits, which are stable but have lower interest rates.
Risk: Market movements affect PMS, but fixed deposits are risk-free.
Liquidity: PMS is more flexible than fixed deposits, which have withdrawal penalties.

Conclusion

PMS offers organised wealth accumulation with skilled management and tailored investment methods. It may yield higher profits, but investors must consider market circumstances, risk exposure, costs, and liquidity limits. Comparisons of PMS to other investments, including analysis of alpha, volatility, and expense ratios, can help investors make better decisions.

Evaluate the PMS provider’s investment strategy, track record, and financial goals to choose the right one.

Remember that PMS is a market-linked product regulated by SEBI. Investments in PMS involve market risks. Past performance is not indicative of future results. Please consult a SEBI-registered investment adviser before making decisions.

FAQs

What factors affect PMS returns in India?

Market conditions, risk management, asset allocation, investment horizon, taxation, and liquidity affect PMS results. Economic changes and a good fund manager affect performance.

How do PMS investment returns compare with other investment options?

It varies from PMS to PMS, but their returns are often market linked. PMS managers aim to beat the benchmark index depending on the strategy they use. The returns can thus be highly variable and dependent on the strategy as well as market conditions. Their returns are thus more difficult to assess versus fixed deposits which have predictable performance or mutual funds with a long history. It’s for this reason a PMS is chosen by those willing to take the higher risk that comes with such instruments and who have the necessary capital and income streams.

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