PMS vs Mutual Funds: Can You Benefit from Investing in Both?
Mutual funds remain one of the most accessible and widely used investment vehicles for retail investors in India. However, as investment needs become more complex, high-net-worth individuals (HNIs) are turning to Portfolio Management Services (PMS) for a more customised approach. Both mutual funds and PMS aim to deliver returns by investing in equity and other asset classes. Still, they differ in terms of investment thresholds, management style, regulatory structure, and flexibility. This article compares PMS vs mutual funds to help investors understand how each works and whether it is possible to benefit from both.
What is PMS?
Portfolio Management Services (PMS) is a professional investment service where a qualified portfolio manager manages your investments based on your financial goals, risk appetite and return expectations. If you don’t have the time or expertise to manage stock market investments, PMS can be a suitable solution.
PMS is ideal for individuals with high net worth. According to the Securities and Exchange Board of India (SEBI) guidelines, the minimum capital required to invest through PMS is ₹50 lakh.
PMS is classified into the following three types:
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Discretionary PMS: The fund manager takes all investment decisions on your behalf.
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Non-discretionary PMS: The manager advises you, but you take the final call on each investment.
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Advisory PMS: You receive guidance and market analysis, but execution is entirely your responsibility.
What are mutual funds?
A mutual fund is an investment option where your money is pooled with other investors and managed by professional fund managers. These managers invest in a mix of assets like stocks, bonds or other securities to help you earn returns based on your financial goals and risk appetite.
Types of mutual funds include:
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Equity mutual funds: These primarily invest in stocks and are suitable for long-term goals.
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Debt mutual funds: These invest in fixed-income assets like bonds and are ideal for stable, low-risk returns.
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Hybrid funds: These combine both equity and debt, offering a balance of risk and reward.
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Index funds: These mimic market indices like the Nifty or Sensex.
PMS vs mutual funds
Here is the difference between PMS and mutual funds in a tabular format:
| Parameters | Portfolio Management Services (PMS) | Mutual Funds |
|---|---|---|
Ownership of Securities | You own individual stocks or securities directly in your name. | You own units of a pooled fund; the fund owns the securities. |
Minimum Investment | Requires a minimum investment of ₹50 lakh as per SEBI regulations. | You can start with as low as ₹100 (in Systematic Investment Plan, or SIP) or ₹500 for a lump sum in many schemes. |
Customisation | Highly customised portfolio based on your goals, risk profile, and preferences. | Standardised scheme structure; the same for all investors in a particular fund. |
Control & Transparency | More control and transparency; you can see the exact stocks held. | Less control; portfolio decisions are made by the fund manager,and you only see overall holdings. |
Taxation | You pay tax on capital gains for each stock sold per your holding period. | Tax applies only when you sell your units, not on each transaction inside the fund. |
Charges | Higher fee, usually includes management fees, performance fees, and transaction costs. | Lower charges and mostly just the expense ratio, and sometimes the exit load. |
Regulation | Regulated by SEBI under PMS guidelines. | Regulated by SEBI under Mutual Fund regulations. |
Ideal For | High-net-worth individuals (HNIs) seeking personalised management and willing to take higher risks. | Retail investors looking for affordable, professionally managed diversification. |
Liquidity | Less liquid—selling can take time and may involve charges. | Highly liquid—open-ended funds can be redeemed on any business day. |
Reporting & Disclosure | Detailed customised reporting is usually provided. | Standard fact sheets and Net Asset Value (NAV) updates are provided publicly. |
Factors to consider when investing in PMS
Some important factors to evaluate before investing in PMS include:
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Track record
Don’t rely solely on brand names. Assess the individual track record of the portfolio manager handling your funds. Review their performance across various market cycles to understand consistency, risk handling and investment style. -
Investment strategy
Understand the manager’s approach. Are they aggressive, value-oriented, sector-specific, or contrarian? Invest only if their style aligns with your risk appetite and financial objectives. Avoid PMS schemes focusing on volatile or thematic investments if you prefer stability. -
Customisation options
One key advantage of PMS is flexibility. Confirm whether you can customise the portfolio, for example, by excluding specific sectors or focusing on ESG themes. -
Reporting and transparency
You should receive timely and detailed performance reports, holdings disclosures and transaction histories. Confirm the frequency and mode of communication, whether digital or physical. -
Regulatory compliance
Ensure the PMS provider is SEBI-registered and fully compliant. This offers you a safety net and grievance redressal. Ask for the SEBI registration number and check for any past regulatory actions.
Factors to consider when investing in mutual funds
Some of the parameters you must look into before investing in mutual funds are:
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Your financial goal
Before investing, define the purpose of your investment. Is it for retirement, your child’s education, or a house down payment? Each goal has a different time horizon and risk appetite. Choose funds accordingly. -
Risk tolerance
Know how much risk you can handle. If you’re risk-averse, consider debt or hybrid funds over equity funds, which can fluctuate significantly in the short term. -
Asset allocation fit
Review your existing portfolio before adding a new mutual fund. Avoid over-concentration in one asset class. Ensure the new fund complements your existing investments. -
Analyse the expense ratio
The expense ratio impacts your returns. Even a 1% difference can significantly affect long-term gains. Compare the ratio with peers in the same category before investing. -
Monitor fund rating
Check independent ratings by agencies like CRISIL. Use these ratings as a reference point, not the sole basis, for selection.
Conclusion
Whether you invest in Portfolio Management Services (PMS) or Mutual Funds, both avenues offer distinct advantages. In the mutual funds vs PMS debate, PMS stands out for its personalised management and direct ownership of securities, making it ideal for high-net-worth individuals (HNIs). On the other hand, mutual funds can be started with just ₹100 through the SIP mode. Regardless of your choice, both investment options provide expert management, risk diversification and tailored strategies to help you meet your financial goals.
This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.
