Want to invest in markets? Check if PMS fits your needs?

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If you invest directly in the share market then you may know that there are two other ways to be in the market. They are mutual funds and portfolio management service (PMS). The difference between the two is that mutual funds are not customised while PMS can be customised as per the customer needs and risk profile. Now let us understand the difference between mutual funds and PMS, and where should you invest?

In PMS, through the portfolio manager you can invest in shares, fixed income instruments, structured products and various other kind of securities, which are managed by professionals. Whereas mutual funds are a professionally managed pool of funds received from investors, which invests in stocks and bonds. However, when you invest in mutual funds, you don’t get shares of different companies, you get mutual fund units. When you invest in PMS, you own individual securities.

Minimum investment One problem with PMS is that it has a minimum investment requirement of Rs. 50 lakh so it’s appropriate for big investors, whereas a mutual fund SIP can start from as low as Rs 500 a month.

Further, an equity mutual fund has to invest a minimum of 65% in equity, regardless of market conditions. In contrast, PMS have the flexibility to increase or decrease the allocation to equity based on market scenarios and investor requirements.

MFs tax efficient Regarding taxation, mutual funds are better. Mutual fund investors have to pay tax only during the time of redemption. While in PMS, investors have to pay tax as and when they sell securities and shares.

In terms of returns, PMS provides better returns and sometimes higher as compared to mutual funds over the long-term. Investors should also note that PMS has higher fees and taxes along with high returns. Further the returns also differ from portfolio to portfolio.

In PMS, the strategy is similar to a mutual fund scheme. Because a PMS only releases model portfolios, it is referred to as a strategy rather than a scheme.

Who should invest? Now the question is: What kind of investors should invest in PMS?

PMS strategies are usually more appropriate for experienced investors who understand how to manage risk and endure market fluctuations.

They are for well-informed investors like high net worth individuals and ultra HNIs, family offices, and other institutions who have the money to manage risk and sustain ups & downs.

Munjal Mehta, CFA, Business Head of Fortune Wealth and Financial Services says “One big advantage of PMS as compared to mutual funds is that PMS provides customised fee structures and profit-sharing models, whereas there is no such provision in MF. Further investors see the exact quantity of stocks, dividends, fees, etc in a PMS, compared to monthly portfolio disclosures in an MF.”

Whether mutual funds or PMS is best for you depends on various things like the size of your investment portfolio, how comfortable you are with taking risks, and where you want your money to go.

Modest investment Mutual funds may be a good fit for those with a modest corpus who do not want to deal with a high level of tax compliance. But if your corpus is in the six or seven figures, requires customisation, and so on, PMS might be your best bet.