What is better PMS or Mutual Funds?

If you don’t want to trade in the stock market yourself, you can choose the option of investing through mutual funds in the market in a systematic manner with small installments or lump sum investments. However, if you want to invest only in shares and avoid buying and selling stocks in the stock market yourself, then investments can be made under the Portfolio Management Service (PMS). In mutual funds, you buy schemes investing in equity, while in portfolio management services, you invest in a customized portfolio of shares. Professional money managers create portfolios according to your target in PMS. You should have at least Rs 50 lakh to invest in this.

A comparison has been made between the performance of Portfolio Management Services and Mutual Funds in the latest study by PMS Bazaar. This study explains the differences and returns between PMS and Mutual Fund performance on various aspects and benchmarks including categories, time frames, etc.

According to the report, in the last 5 years, 59 schemes of PMS have outperformed the benchmark, while only 46% of mutual fund schemes have performed better than the benchmark. This trend is also observed in investments of 3 years and 10 years. PMS is providing consistently excellent returns in all categories.

PMS and MF are different from each other. Comparing them on the same scale is not appropriate. However, both provide opportunities for investment and growth but their perspectives are different. If you want to invest in either PMS or mutual funds, you need to understand some basic things first. Such as, what is the difference between PMS and MF? Which option should be chosen for investment? etc.

Speaking of PMS, they emphasize personalization of investment. They pay more attention to creating portfolios that can cater to the specific needs of investors. PMS offers two types of schemes  discretionary and non-discretionary. In discretionary schemes, the fund manager makes decisions himself while in non-discretionary schemes, the fund manager takes approval from the investor. Unlike mutual funds, there is no pooling in PMS and no units are issued.

According to SEBI regulations, all PMS providers must disclose the performance of each scheme. Additionally, every strategy must be disclosed and made available to investors. Comparison with associated benchmarks must also be done. You should have complete information about this before investing.

In PMS, a strategy is similar to a mutual fund scheme. PMS only issues model portfolios. It invests according to a strategy rather than a scheme or plan. Investing a large amount is required in PMS, which starts from at least Rs 50 lakh so its reach is especially better for high net worth individuals.

On the other hand, mutual funds are a professionally managed pool of money obtained from investors for buying stocks and bonds. An investor can invest as little as Rs 100.

PMS offers a selective approach, offering portfolios of 20 to 30 stocks, while mutual funds provide diversified portfolios of around 40 to 50 stocks. The objective of mutual funds is clear-cut. They must adhere to the categories defined by SEBI, whereas PMS performance is disclosed monthly.

In the top PMS provider’s PMS, returns of over 70% can be achieved, while the average annual return of equity mutual funds can only go slightly above 20%. According to PMS Bazaar’s report, PMS has outperformed mutual funds in all categories for the past year.

Looking at the numbers, the one-year return of thematic PMS is 87%, while mutual funds in this category have a return of 64%. Small-cap mutual funds have a one-year return of 17%, whereas PMS has provided a whopping 94% return.

Raghavendra Nath, MD of Ladderup Wealth Management, says that when you are ready to invest a minimum of Rs 50 lakh, you can consider investing in PMS. PMS is more flexible compared to mutual funds. PMS can invest in any stock based on market conditions and can hold cash during bullish phases.

Speaking of earnings, mutual funds fare better in terms of taxes compared to PMS. Tax is only applicable when withdrawing money from mutual funds. Whereas in PMS, investors have to pay tax on stock sales or dividends. Tax can be levied on frequent buying and selling in PMS, slowing down the compounding process, while mutual fund managers can save on such taxes.

PMS is a regulated investment strategy for HNI investors seeking personalized strategies. However, you need to monitor this investment. You should seek advice from a competent portfolio management team and align assets and financial plans based on that advice. Investing in PMS incurs higher fees and taxes, so before choosing a PMS provider, you should understand the management fees of the PMS fund which can range from 1 to 3 percent. Additionally, entry load charges and administration fees will also be applicable.

Mutual funds and portfolio management services are both managed investments which help investors achieve their financial goals. Retail investors seeking diversified portfolios with low risk and low cost are better suited for mutual funds.

On the flip side, PMS funds offer higher returns with more risk. They are suitable for HNIs seeking customized portfolios. PMS provides customized attention, expert advice, and good performance, making it a better option for investors looking to invest a minimum of Rs 50 lakh.