Portfolio Management Services (PMS) Vs Mutual Funds (MFs): Investment Insights

Tue, 20 Aug 2024

5 min read

Portfolio Management Services (PMS) and Mutual funds are investment instruments an investor can look at to gain high returns. In this blog, we'll explore the differences between Portfolio Management Services (PMS) and Mutual Funds (MF).  Let's dive in and unravel the nuances of these investment avenues to empower you in making informed decisions.
 

• What is Portfolio Management Services (PMS)?

  PMS is a customized investment solution offered by professional portfolio managers where the portfolio manager manages the investments on behalf of the client based on their investment objectives, risk tolerance, and financial goals. The portfolio manager has the discretion to make investment decisions on behalf of the client, typically in equities, debt, and other asset classes, aiming to achieve superior returns.
  
  PMS usually requires a higher minimum investment compared to mutual funds and is tailored to the specific needs of the investor. PMS boasts a more concentrated portfolio in contrast to mutual funds, resulting in potentially higher returns but also increased risk.
  
  There are two types of Portfolio Management: Discretionary and Non-Discretionary. In Discretionary portfolio management, the portfolio manager has full discretion to make investment decisions on behalf of the client without requiring prior approval for each transaction. In Non-Discretionary Portfolio Management the portfolio manager provides investment advice and recommendations to the client, but the final decision-making authority rests with the client, who approves or rejects each transaction. To explore PMS further, feel free to check out our comprehensive blog on the subject.

• What are Mutual Funds (MFs)?

  Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They are managed by professional fund managers who make investment decisions on behalf of the investors. Each investor owns shares of the mutual fund, proportionate to their investment, and earns returns based on the fund's performance. Mutual funds offer diversification, professional management, and liquidity, making them a popular choice for investors of all levels. To explore Mutual Funds further, feel free to check out our comprehensive blog on the subject.

• PMS v/s MFs:

  Now that you've grasped the concepts of PMS and mutual funds, let's explore further into the distinctions between PMS & MFs:
  
  1. Customization: PMS offers personalized investment portfolios tailored to individual investors' needs, while mutual funds typically have standardized portfolios that cater to a broader investor base. 
  
  2. Investment Options: Mutual funds typically offer a wide range of investment options, including equity funds, debt funds, hybrid funds, and more, catering to various risk profiles and investment objectives. PMS may have more flexibility in terms of investment options, allowing for direct equity investments, structured products, and other specialized strategies.
  
  3. Minimum Investment: PMS requires a minimum investment of Rs 50 lakhs compared to mutual funds which can be started with a minimum investment of Rs 500 per month.
  
  4. Fees: PMS charges a fee on the AUM or performance delivered by the fund and can range from 1% to 2.5% p.a of AUM. PMS usually charges a fee based on the assets under management (AUM) or performance, while mutual funds typically charge expense ratios that cover management fees and operational expenses.
  
  5. Management Style: In PMS, a dedicated portfolio manager makes investment decisions based on the client's objectives and risk tolerance, offering more flexibility and control. In mutual funds, professional fund managers manage the fund's portfolio according to predefined investment objectives and strategies.
  
  6. Transparency: Mutual funds provide regular disclosures of their holdings and performance in public domain, offering transparency. PMS provides disclosures about the holdings however it is limited only to the investors. 
  
  7. Entry and Exit : Mutual funds generally offer daily liquidity, allowing investors to buy or sell their units at NAV (Net Asset Value) prices at the end of each trading day. PMS may have longer lock-in periods, depending on the terms of the agreement between the investor and the portfolio manager.
  
  8. Taxation: Tax implications may differ between PMS and mutual funds based on factors like holding period, type of investment, and applicable tax laws. Investors should consult with tax advisors to understand the tax implications of investing in both options.
  
  9. Reporting and Communication: Mutual funds typically provide regular updates to investors through periodic statements, fact sheets, and annual reports, offering transparency and visibility into the fund's performance and portfolio composition. PMS may provide customized reporting and communication based on the preferences of individual clients, offering a more personalized experience. 
  
   

• To Bring It to a Close

  In conclusion, the decision between Portfolio Management Services (PMS) and Mutual Funds (MF) ultimately boils down to individual preferences, investment goals, and risk tolerance levels. While both avenues offer unique benefits and cater to different investor needs, it's crucial to thoroughly evaluate each option before making a decision.
  
  At InCred Premier, we acknowledge that your hard-earned wealth deserves nothing less than the utmost care and attention. Rest assured, we are committed to providing you with unparalleled investment services. If you need help or have any questions as you progress, our dedicated team is here for you. You may reach out to us at care@incredpremier.com