Difference Between PMS and Mutual Fund – PMS vs MF Comparison

Both Portfolio Management Services (PMS) and Mutual Funds (MFs) are in the business of providing professional investment management services – but that’s where the similarities end. PMS is for high-net-worth individuals (HNIs), while the other brings the market to anyone with ₹500 to spare. Their cost structures, risk levels, and transparency differ just as much. 

In this article, we break down those differences to help you decide which path suits your investment style.

Overview of PMS and Mutual Funds

• PMS is a professional investment management service that is specifically designed for high-net-worth individuals (HNIs), typically requiring a minimum investment of ₹50 lakhs. Fund administrators are responsible for the creation and management of customised portfolios. Since they hold the securities directly, investors have more transparency and flexibility. 

• Through pooling of money from several investors, mutual funds invest in securities, bonds, or other assets. Suitable for retail investors seeking market-linked returns with minimal effort, they offer diversification with reduced capital requirements and are managed by fund houses.

Here are the key differences between a mutual fund and PMS: 

Feature	PMS	Mutual Fund
Customisation	High	Low
Ownership	Direct	Indirect (units)
Diversification	Moderate	High
Minimum Investment	₹50 Lakhs+	₹500+
Fee Structure	Fixed & Performance fees	Expense ratio
Risk Exposure	High	Moderate

Comparison of Investment Strategies

The flexibility and execution of mutual fund and PMS investment strategies vary greatly. PMS allows a very individualised approach, while mutual funds follow a standardised and conventional framework to accommodate more investors.

1. Customisation 

• PMS offers a high level of flexibility by aligning with each investor’s risk appetite and return goals. 
• .Investors can choose from a range of PMS strategies such as value, growth, thematic, or sectoral, depending on the portfolio manager’s offerings. While customisation is possible, not all PMS offer fully bespoke portfolios to each client.
• Fund managers can make rapid adjustments, using real-time market analysis,  by actively purchasing and selling securities.

2. Standardisation

• Mutual funds adhere to a standardised methodology that includes predetermined investment objectives.
• The investment strategy is predetermined, regardless of whether it is equity, debt, hybrid, or thematic investing.
• Fund managers are well-suited for passive investors due to their emphasis on the development of long-term wealth.

Cost and Fee Structure Comparison

Management Fees 

• PMS: As a result of the active management and the presence of a dedicated portfolio manager, PMS imposes higher fees. Investors typically pay fixed fees (1-3% of assets under management), and performance-linked commissions (10-20% of returns above a hurdle rate) are typical PMS fees.

• Mutual Funds: Have a low expense ratio (0.5-2.5%) since fees are evenly distributed across many investors.

Performance Fees 

• PMS: PMS managers charge performance-based fees, so they benefit more as returns rise.
• Mutual Funds: Regardless of performance, mutual fund fees are constant.

Investor Suitability and Risk Profiles

Portfolio Management Services (PMS) are designed for high-net-worth individuals (HNIs) who are interested in personalised and niche investment strategies.  They offer customised portfolios managed by professionals and require a minimum investment of ₹50 lakh.  This method is appropriate for investors who are at ease with the potential for volatility and increased risk.  ​

Conversely, mutual funds are well-suited to most retail investors because of their low entry barriers, which begin at a mere ₹500. They offer diversified portfolios that are managed by fund managers, tailored to individuals who prefer a passive investment approach with moderate risk exposure.

Who can choose PMS?

• High-Net-Worth Individuals (HNIs): PMS is more accessible for HNIs due to substantial initial expenditure, usually starting at ₹50 lakhs or more. ​
• Investors’ Need for Customised Investment Strategies: Usually, a PMS creates tailored portfolios that match an investor’s financial goals and risk tolerance, giving clients significant asset selection control. ​
• Comfort with Increased Risk and Volatility: Customised and focused portfolios may increase PMS risk and volatility. 

Who can choose Mutual Funds?

• Retail investors with limited capital: Mutual funds are accessible to a wide variety of investors with minimal entry barriers, starting at ₹500. 
• Preference for low-cost diversified investments: Mutual funds pool investor funds to form diversified portfolios, making them cost-effective for individual investors. This spreads risk among assets. 

Performance & Transparency Differences

Performance in PMS vs Mutual Funds 

• PMS may outperform mutual funds as a result of their active management and stock selection.
• In case the performance fails to justify costs, excessive fees can erode returns.
• Due to their diversification, mutual funds provide consistent performance with reduced risk.

Transparency in PMS vs Mutual Funds    

• PMS provides real-time portfolio and transaction insights.
• Mutual funds report their NAVs daily but do not provide live portfolio updates. They are mandated to share portfolio updates but usually on a half yearly basis, for equity funds and fortnightly for debt funds.

Conclusion

Mutual funds and PMS offer organised wealth growth, but they serve different investors. For HNIs seeking high-risk, high-return options, PMS offers customised strategies, direct ownership, and active management combined with advanced strategies. It has increased costs, liquidity limits, and volatility.

Diversification, low cost, and expert management make mutual funds more accessible to investors. Low entry barriers and sustained development make them ideal for passive investors.

Choosing between a PMS and a Mutual Fund? Before choosing, examine your risk tolerance, investing goals, and costs.

FAQs

Explore other PMS article:

• Best PMS in India
• SEBI Registered PMS
• PMS Returns in India
• Types of PMS
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• Active and Passive Portfolio Management
• How to Invest in PMS?