Difference Between PMS Vs AIF Vs Mutual Funds

Portfolio Management Services (PMS), Alternative Investment Funds (AIFs) and Mutual Funds (MFs) are all investment options that offer the potential for high returns. However, there are some key differences between these three types of investments.

Portfolio Management Services (PMS)

Portfolio Management Services (PMS) is a type of investment service that provides personalized portfolio management for high-net-worth individuals (HNIs) and institutions. They invest across equities, fixed income, debt, cash, structured products and other individual assets that are managed by a professional money manager. PMS allows investors to have direct ownership of stocks and to customize their portfolios according to their specific needs and risk preferences. PMS also offers differentiated and high-risk-high-return strategies that may appeal to more sophisticated investors. Portfolio managers use a variety of investment strategies to build and manage portfolios that meet the specific needs of their clients. PMS has a high investment requirement of INR 50,00,000, thus limiting access to retail investors.

You may also like to read: Is PMS a Good Investment?

Alternative Investment Funds (AIFs)

Alternative Investment Funds (AIFs) are a type of investment fund that invests in a variety of assets that are not typically available to retail investors. They are collective investment vehicles that invest in alternative assets such as private equity, venture capital, hedge funds, real estate, commodities and derivatives. AIFs are regulated by the Securities and Exchange Board of India (SEBI) and are classified into three categories based on their investment strategy and target investors. Alternative Investment Funds offer investors access to diverse and niche strategies that may generate higher returns than traditional assets. AIFs also have more flexibility in terms of fee structure, leverage, valuation and governance. However, AIFs have a very high minimum investment of 1 crore rupees, limiting the entry for retail investors. AIFs also have higher risks due to illiquidity, volatility and lack of transparency.

Mutual Funds (MFs)

Mutual Funds (MFs) are pooled investment vehicles that invest in equities, debt, money market instruments and other securities. MFs are managed by professional fund managers who follow a predefined investment objective and strategy. MFs are regulated by the Securities and Exchange Board of India (SEBI) and offer a variety of investment options to suit different investor profiles. Mutual Funds offer investors the benefits of diversification, low-cost access, tax efficiency, ease of operation and systematic investment plans. MFs also have a wide range of schemes to suit different risk-return profiles and financial goals. 

PMS Vs AIF Vs MF: Key Differences

The following table summarizes the key differences between PMS, AIFs and MFs:

Basis of Difference	PMS	AIFs	MFs
Structure	Individually managed	Privately pooled investment vehicles	Pooled investment vehicles
Investment Objective	High Returns	High returns, capital preservation, or diversification	Long term growth and income
Regulation	SEBI (Portfolio Managers) Regulations 2020	SEBI (Alternative Investment Funds) Regulations 2012	SEBI (Mutual Funds) Regulations 1996
Minimum Investment	INR 50 Lakhs	INR 1 Crore	INR 500
Ownership	Direct ownership of stocks	Indirect ownership through units or shares	Indirect ownership through units
Customization	High degree of customization	Low to moderate degree of customization	No customization
Types	Discretionary PMS, Non-Discretionary PMS, Active Portfolio Management, Passive Portfolio Management	Category I AIFs, Category II AIFs Category III AIFs	Equity, Debt, Hybrid, Solution Oriented and Other.
Strategy	Differentiated and high-risk-high-return strategies	Diverse and niche strategies	Conventional and low-risk-low-return strategies
Taxation	Taxed as per individual’s slab rate on capital gains	Taxed as per the nature of income and fund category	Taxed as per the type and holding period of fund
Transparency	High transparency on portfolio holdings and transactions	Low transparency on portfolio holdings and transactions	Moderate transparency on portfolio holdings and transactions
Liquidity	Low to moderate liquidity depending on the stocks held	Very low liquidity due to lock-in periods and exit loads	High liquidity depending on the type of fund
Investor Eligibility	HNIs and institutional investors	Sophisticated investors	All types of investors
Fees	Entry Load, Management Charges, Exit Load and Profit Sharing	Management Fee and Profit Sharing	Total Expense Ratio

PMS Vs AIF Vs MF: In Detail

• Investment Objective
  PMS, AIFs and MFs have different investment objectives. PMS is typically used to achieve high returns for HNIs and institutions. AIFs can be used to achieve a variety of investment objectives, such as high returns, capital preservation, or diversification. MFs are typically used to achieve long-term growth and income.
• Investment Strategies
  Portfolio managers use a variety of investment strategies to build and manage portfolios that meet the specific needs of their clients. AIF managers also use a variety of investment strategies, depending on the specific objectives of the fund. MF managers have different investment objectives to build and manage portfolios that meet the needs of their investors.
• Minimum Investment Amount
  The minimum investment amount required for PMS, AIFs and MFs varies. The minimum investment amount for PMS is INR 50,00,000, for AIFs is INR 1 crore and for MFs is INR 500.
• Fees
  PMS and AIFs typically have higher fees than mutual funds. This is because they are providing a more personalized investment service and investing in more illiquid assets. PMS charges management fees of around 1-3% and profit-sharing charges (for a set threshold). AIFs, on the other hand, charge 2% management fees and a 20% share in the profits. Mutual funds charge expense ratio, the charges vary for different types of funds. SEBI has set a limit of 1% – 2.25%. 
• Liquidity
  PMS and AIFs typically have lower liquidity than mutual funds. PMS offers direct ownership of securities and relatively less liquidity. AIFs have specific lock-in periods and may have limited liquidity options. MFs provide easy accessibility and high liquidity with daily NAV-based transactions.