Mutual Fund Performance - Five ways to measure Mutual Fund Performance

Mutual Fund Performance - Five ways to measure Mutual Fund Performance

Mutual fund investment plans have emerged as a preferred investment choice for a large number of investors in the last few years. Earlier, most of the households invested their savings in traditional investments like FDs, PPFs, and gold. However, the need for better returns from their savings and growing awareness of other investment options, have led investors to move away from traditional investments and explore other options such as mutual funds.

What are mutual funds?

In simple words, mutual funds are pooled investments from a large number of investors. They collect money from various individuals and entities that have a common investment objective and subsequently invest this pool of money in various stocks, bonds, and other securities.
Thus, mutual fund investment plans allow you to distribute your invested money in a large number of securities than you could put in your portfolio. As a mutual fund investor, you hold units that represent a portion of your holdings in the scheme.

Why is it advantageous to invest in mutual funds?

Mutual fund investment no doubt is one of the smartest investments for almost any investor. Here are a few of its advantages:

1. Simple
A mutual fund is the simplest way to invest in capital markets for higher returns. If you are a novice but wish to invest in the capital markets, then mutual funds provide you with the simplest platform to invest in a healthy mix of stocks, bonds, and other securities.

2. Easily accessible
Mutual funds’ investments are easily accessible for all investors and as an investor, you can start investing in mutual funds for an amount as low as Rs. 500.

3. Diverse
Mutual funds allow you to diversify your portfolio as you can gain access to different segments of the market through various mutual fund investment plans. Thus, you can invest in a variety of assets, sectors, securities, etc.

4. Professionally managed
Mutual fund schemes are professionally managed by fund managers who have the expertise, time and resources and make sound investment decisions based upon the objective of the scheme.
As the number of mutual fund schemes available in the markets has increased dramatically, evaluating the performance of mutual funds is of utmost importance to make wise investment choices. If you are wondering which is the best mutual fund to invest right now and how to evaluate the performance of mutual funds, then here is a simple guide for you.

Top 5 measures to evaluate the performance of a mutual fund

1. Compare performance with an appropriate benchmark

For every mutual fund, there is a benchmark index to which you can compare the mutual fund performance. If your mutual fund investment is consistently generating higher than the benchmark, then it reflects the ability of the fund manager to manage the portfolio better. The important aspect here is to compare the mutual fund performance with an appropriate benchmark.
Even when you are comparing it with different mutual fund schemes always look at the returns of other funds from the same category with a similar investment objective. Comparing the performance of a midcap fund with that of a large-cap fund would be like comparing apples to oranges. Hence, be careful and make relevant comparisons to see the performance of mutual funds.

2. Alpha

Alpha of the fund helps measure the performance of the mutual fund on a risk-adjusted basis. Alpha takes into account the volatility of the mutual fund and compares the risk-adjusted performance of the fund to the benchmark. A positive alpha indicates that the fund manager has managed to outperform your mutual fund investments as compared to the benchmark. Similarly, a lower alpha indicates an underperformance of the fund as compared to the benchmark. Thus, the more positive the alpha of a fund, the better it is.

3. Beta

Apart from the risk associated with the security due to the nature of the asset class, every investment is exposed to a systematic risk which is due to the state of the economy or market in general and is unavoidable.
The beta ratio captures this market risk of your investment. A higher beta indicates that the fund will be more volatile than the market. So, if a fund has a beta of 1.15 then it is 15% more volatile than the market.

Note: Alpha & Beta both are risk ratios and are crucial means to find out the performance of mutual funds. The two ratios help you to determine the returns generated as compared to the risks undertaken. As an investor, you should look at funds that have a higher alpha and lower beta.

4. Portfolio diversification

The advantage of investing through mutual funds is that they help you diversify your portfolio. A well-diversified portfolio helps you to mitigate the risks associated with investing in funds focussed on too few stocks or sectors or asset classes. So, to ensure that you achieve the desired results, you should review the holdings in your mutual fund. You can check the portfolio of your mutual fund by looking at the fund fact sheet.

5. Expense Ratio

One of the biggest challenges for mutual funds is the high fees associated with it. Running any mutual fund involves costs that need to be borne by the investor. The expense ratio is the percentage of money spent to pay the salary of the fund manager, his team and other expenses. So, if the expense ratio of a mutual fund is high then it will reduce the overall returns generated by your mutual fund investments. So, while choosing a fund you should also see that the expense ratio is not very high.
Here is a list of best mutual funds for 2019 across popular categories you may consider for investing now:

The Bottom Line

Choosing to invest in mutual fund investment plans is just the start of your journey as an investor. The important aspect of any investment decision is that it helps you achieve your goals within the desired time frame and considers your tolerance to risk. Mutual fund portfolios are tailor-made to meet your unique goals and are one of the best ways to achieve your investment objectives.

So, if you want help with your mutual fund investment portfolio or you want to find the best mutual funds to invest now or simply want guidance, you can always seek assistance from a platform like IndiaNivesh. Their experts will help you build a portfolio that’s best suited for you.

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


Commodity Investment - How to Invest in Commodities

Have you ever thought about how the various goods and products come into existence? What goes into their manufacturing? Every product or good we use is made up of some of the other commodity. Commodities are the raw materials that are used to produce or manufacture other products. Commodities are of various types like agricultural commodities, energy, metals, etc. The prices of commodities keep changing which affect the price of end products as well. Like for example, rising Brent crude prices will lead to an increase in the prices of petrol and diesel. Since the prices of the commodities keep changing you can consider trading in them and take advantage of the price volatility. In this article, you will learn about how to invest in commodities, the best commodities to invest in and everything related to it.But before learning how to invest in commodities, let us learn where you can trade in the commodity market.Where Can YouTrade in The Commodity MarketInvestment in the commodities market in India can be done through the commodity trading exchanges. At present, there are three commodity trading exchanges in India, they are as follows: National Commodity and Derivatives Exchange Ltd. – NCDEX Multi Commodity Exchange of India Ltd. – MCX Indian Commodity Exchange Ltd. – ICEX Out of the above mentioned exchanges, MCX and NCDEX are the most popular among the traders. If you want to trade in the commodities like metal, energy, etc., you can trade through MCX and if you want to trade in agricultural commodities, you can trade through NCDEX. ICEX is known for trading in Diamond.The commodities in India can be classified into three major categories. They are as follows: Agriculture – Maize, Soya, Spices, Pulses, Fibres, Rice, Wheat, Guar, Castor, etc. Metals – Gold, Silver, Platinum, Aluminium, Copper, Lead, Nickel, Zinc, Steel, etc. Energy – Crude oil, Natural gas, etc. The above mentioned are the exchanges and types of commodities where you can invest your money. Let us now learn how to invest in commodities.How To Invest In Commodities In IndiaThe beginners entering the market always have the question in their mind,“how to invest in commodities in India?” In this section of the article, you will learn about the various ways through which you can make an investment in commodities. Invest In Physical Commodities The easiest way to invest money in the commodity market is by physically purchasing it. The purchase is made in the hope that the price of the commodity will rise and you will be able to sell it at a higher price. One of the best commodities to invest in India and hold it physically are precious metals like gold, silver, etc. Invest In Commodity Futures Market Futures contract allow the trader to buy or sell a commodity at a set date and at a set time through contracts. The futures contracts trading is for those people who want to play with the volatility of the commodity prices and make massive gains. Investment in Commodity Related Stocks To avoid the risks of future trading, you can purchase the shares of companies related to commodities. By investing in such stocks, you can take advantage of the commodity price movement and enjoy the returns in the form of price appreciation of the share price. Invest In Exchange Traded Funds Exchange Traded Funds (ETFs) are the funds that comprise of future contract and allow you to invest in them directly. ETFs can be traded just like stocks and you can hold them without the risk of holding any futures contracts. Invest in Mutual Funds No one in the market can tell you what a good time to invest in commodities is. To overcome this problem, you can start a systematic investment plan (SIP) in those mutual funds that deal in commodity related stocks. To invest in the commodity market through any of the commodity exchanges you need to open an account with the broker. In this section of the article, you will learn about how to open a commodity account.How to Open a Commodity Account The first step towards investing in the commodity market in India is opening an account with a exchange registered broker. The selection of the broker must be done with utmost care. Take the feedback from the people about their services and credibility. Select the broker that gives you the best services at the most affordable rates. The next step is to fill the account opening form with the commodity broker. Along with the form, submit the copies of necessary documents that are needed to open an account. The documents include PAN card, address proof, ID proof, income statement and cancelled cheque. After submission of the documents, the broker will carry out verification of the information submitted by you. On successful verification of the information, you will be provided with the account number and password. As soon as your commodity trading account is opened, you must deposit the margin money. The margin money is equivalent to 5% to 10% of the contract value. After account opening, you can trade at any of the commodity exchanges. Let us learn about how you can trade on MCX, which is one of the most popular commodity exchanges in India. Trading on MCXJust like BSE and NSE provides you with the platform to trade in stocks, similarly, trading in the commodities market can be done on the MCX (Multi Commodity Exchange of India Ltd.). In fact, you can find the best commodities to invest in India on MCX. The MCX broker acts as an intermediary between the commodity exchange and commodity trader. On this exchange, you can trade in metals, energy and agricultural commodities. All you need to do is simply place the order with the broker over the phone or place it online using the mobile application. MCX was earlier regulated by Forward Market Commission (FMC) which later got merged with the Securities and Exchange Board of India (SEBI) in the year 2015.Commodity trading account is the primary requirement for making an investment in the commodities market. Whether you are a beginner or a seasoned investor looking to open a commodity trading account, you can consider IndiaNivesh Shares and Securities Pvt. Ltd. We advise our customers about the good time to invest in commodities, the best commodities to invest in, etc. Contact us to enjoy our hassle-free services.     Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

अधिक पढ़ें


FD vs Mutual Fund - Know Difference between Fixed Deposit and Mutual Fund

How mutual funds are better than fixed deposits?Since fixed deposits are perceived to be relatively risk-free, most people opt for them when it comes to their choice for saving money. Thus, fixed deposits have been a perennial favourite with Indian investors for decades. Saving money in the bank in the form of fixed deposits is equivalent to security and safety. However, it is crucial to introspect whether fixed deposits should continue to be a wise savings choice for millions of Indians. For instance, while fixed deposits can appear to offer attractive returns, the tax payable, based on the current tax slabs, for an investor may be on the higher end if they are investing in numerous fixed deposits of higher amounts. Also, given the rising rate of inflation, investing only in fixed deposits could actually turn out to be disadvantageous or even a loss-making proposition. The best option here could be to consider mutual funds as an alternative or at least an add-on to fixed deposits. Here, we take a detailed look into FD vs mutual fund.In the debate between mutual fund vs fixed deposit, it is essential to note that currently, both mutual funds and fixed deposits are equally popular among investors. Both these investment avenues offer reasonable returns to investors over a period. However, they have their unique characteristics. The difference between fixed deposit and mutual fund lies in understanding how mutual funds can be better than fixed deposits. To know which is better FD or mutual fund, you may want to analyse both these investment options and weigh their pros and cons. Only then can you take an informed decision. What are fixed deposits?Fixed deposits are conventional financial instruments provided by banks and non-banking financial companies (NBFCs) to their customers. These fixed deposits, typically, offer a higher rate of interest than a regular savings account. In other words, when you deposit a pre-specified amount for a pre-specified tenure, you get a fixed rate of interest at the end of the tenure. However, if the amount in the deposit is withdrawn prematurely, the bank could levy a penalty and you may lose out on the interest your investments were to fetch. Under the ambit of fixed deposits, banks also offer recurring deposits and flexible fixed deposits, which may overcome some of the above-mentioned flaws but simultaneously reduce your returns.Understanding mutual funds as an alternative to fixed depositsDebt mutual funds are a type of mutual funds that offer a wide range of possibilities depending on your risk taking ability and multiple other factors. In actuality, debt mutual funds are almost similar to bank deposits, serving the same function and rivalling each another. However, the main areas of difference lie in taxation, liquidity, returns and safety. Mutual funds top the advantage in terms of tax-adjusted returns, rate of interest and liquidity, while fixed deposits may be considered safer by the larger populace.Although bank deposits are regarded as the safest avenue to saving money in India, there has been historical precedence of local banks and cooperative banks defaulting on their customers' money. Hence, it may not be entirely true that fixed deposits are the safest savings instruments today. Fixed deposits that are locked in for a lengthy tenure could also face the risk of losing value in a scenario where interest rates are likely to rise. Although the risk can be in terms of opportunity cost, investors may not actually lose value when the deposit matures.On the other hand, the yields from debt mutual funds are market-linked, thus the returns sometimes may not be as high as promised. Having said that, the mutual fund industry is stringently regulated and monitored by the Securities And Exchange Board Of India (SEBI). SEBI authorities have drawn tightly regulated guidelines that control the risk profile of investments, the risk individual funds are likely to face, valuation of investments, and how rigorously the maturity profile shapes the fund's clear goals. The measures laid down by SEBI have been highly efficient in curtailing risk and ensuring safety.Why consider mutual funds over fixed deposits?Coming closest to traditional fixed deposits, in terms of safety, debt mutual funds can be ideal. The primary objective of debt mutual funds is to provide its investors with steady income throughout the investment tenure. Hence, choosing a tenure in line with that of a debt mutual fund can be useful in getting desired returns. Every fund house offers detailed information regarding various debt funds and their time horizon. This information can be crucial in helping you understand how the fund is performing with regards to interest rates. This can also help you understand market fluctuation and steer you to make informed choices while helping you take advantage of the right fund.The most crucial difference between mutual funds vs fixed deposits India comes down to taxation. The returns received from fixed deposits are under the purview of interest income and are typically added to one's overall revenue. If you belong in the top tax bracket (30%), the taxed could eat a substantial portion of the returns. Besides, fixed deposits can also be a candidate for tax deducted at source (TDS) if the interest exceeds a certain amount. On the other hand, tax rates are constant for debt funds, if held for 36 months or less. However, TDS is not generally deducted. If debt mutual funds are held for more than 36 months, the yields are classified as long-term capital gains. These gains are taxed at 20% with indexation.With regards to liquidity, you could receive the proceeds from an open-ended debt fund within a period of 2 to 3 working days. Fixed deposits, on the other hand, could also be availed within a couple of days’ notice, but can attract penalties if the funds are withdrawn before its maturity.Conclusion At the end of the day, debt mutual funds can be a superior savings option over bank deposits with its capacity to offer better tax-adjusted returns, as can be seen in the market. At the same, since there is an element of credit risk and higher interest rate in mutual funds, you can be compensated with higher returns by investing in mutual funds over fixed deposits. But knowing the risks involved and choosing the right mutual fund can help you get the best yields from your savings.  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

अधिक पढ़ें

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Stock Charts – Importance of Stock Charts in Share Market

    Often when people begin their investment journey in the stock market, they are swamped with multiple questions in their mind. The very first basic question that comes to the mind is how to determine which stock to purchase and which to avoid. Well, the answer to this question is - stock charts. The stock charts help you in evaluating and gathering all the important information that you must consider before purchasing a stock. By learning stock pattern analysis you can not only become a successful investor but also a successful trader. In this article, you will be learning the different aspects of stock chart reading. Let us first understand what are stock charts? What are Stock Charts? Stock chart is a sequence of prices plotted on a graph over a different timeframe. The y-axis i.e. the vertical axis of the chart represents the price and the x-axis i.e. horizontal axis of the chart represents the time period. Learning and understanding stock chart reading may look like a tough task initially but with little practice, you can master the art. All you need is the correct understanding of the basics of chart reading. They can help you predict the future price movement correctly. Let us now understand the various aspects of stock charts. What are the aspects of Stock Charts? Price and Volume The charts are generally divided into two parts; the price of the stock and the volume of the stock. For correct stock chart analysis and reading of stock chart patterns, it is important to read both price and volume together. This is because if you look only at the movement of the price you would not know how genuine the buying or selling is. For example, a stock has fallen over 5%. Initially, it may look very bad but if the fall is with lower volumes than the average, you may continue to hold the stock because the selling is not done by large retailers who drive the market. The same is the case when the stock is rising but with lower volumes. This rise in the stock price could be fake because when the big players enter the stock there would be a huge rise in the volumes.  Moving Average Lines Moving average lines are very important to understand the performance of a stock. They represent the movement of the share price over a period of time. With the help of moving average lines, you can understand whether the stock is overbought or oversold by large retail participants. The mutual funds and big institutions follow the stock chart patterns and change their positions in stocks when the price rises or moves below the moving average point on the graph. The key moving average points can be a 50-day line, 15-week line, etc. When the stock falls below the benchmark moving average line, the big players often sell their holding and exit the stock. Similarly, when the price moves above the benchmark moving average line, the big players enter and the stock price can rise sharply. Relative Strength Line Relative strength line helps to identify if the stock is a market leader or laggard. This is done by comparing the performance of a stock with the index i.e. Nifty or Sensex. A sharp line rising upwards on the graph indicates that the stock is outperforming the market while a sharp line downwards is an indication that the stock is a laggard and underperforming the overall market. The stock comes in the leadership territory when the Relative Strength line is rising for a breakout and set for a new high in the market. After learning about the various aspects of stock charts, let us learn about some of the basic stock chart patterns. Stock Chart Patterns Daily Stock Chart A daily stock chart on a graph represents the movement of the stock price on a specific day of trading. The day traders use daily stock chart patterns to take intraday positions. The chart has multiple moving day averages like 50 days, 100 days, etc. which the traders monitor continuously to take positions. When the stock rises sharply it is represented by a sharp line rising upwards and when the stock falls, the graph shows a sharp fall in the line. Weekly Stock Chart Just like a daily stock chart represents the stock price movement on a single day, similarly, the weekly stock chart represents the price summary of stock for a single week. This chart is generally used to forecast the price of stocks for the long-term. The weekly charts can display longer-term data on the screen which makes it easy for the analysts and investors to determine the long term trend of a stock. The new investors often get confused between the weekly and daily charts. The confusion is mainly regarding which charts are suitable for them. This section of the article will try to resolve that dilemma. Daily Vs. Weekly Charts The daily charts are said to be good for the traders who are looking for volume and price action on an intraday basis. The stocks on daily charts are said to be giving a breakout when it breaches the 50-day line on either side. On the other hand, for long term investors, weekly charts are ideal. These charts forecast the long term price of a stock along with its trend. It also keeps the investor's emotions under control as they can take wrong decisions looking at the volatile daily chart movements. The Bottom Line There is no doubt about the importance of stock charts in the share market. You can decode the price movement on charts and take advantage of it by making profits. If you want to learn more about stock chart reading and indulge in trading or investing based on it, you can contact IndiaNivesh Ltd. We are one of the most trusted and value-enhancing financial group with new technologies in India.   Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more
  • Share Market Investment – Can I Invest all my Money in Stocks

    Very often, you hear people making a fortune by making investments in the share markets and get lured to invest all our savings in it. Without a doubt, share market investments have helped investors grow their wealth and achieve financial goals. Investing in the stock market is essential for long-term wealth creation, as the returns generated by equities in the long-run have consistently outperformed the returns generated by any other asset classes, but investing all your money in share market is neither wise nor advisable. Shares are extremely volatile and carry a high degree of risk. If you are a beginner in the share market and the success stories of others have made you consider shares as an investment option, it is important to understand that there is no quick and easy way to make money in the share market overnight. Investing in the share market wisely requires you to have patience and also an understanding of how the stock market works. Why should you invest in the share market?1. Potentially higher returns which help beat inflation Equity investments have the potential to generate higher returns as compared to other investments in the long-run. One of the biggest challenges in the investment world today is finding investments where returns beat inflation.2. Dividend Income At the end of each financial year, a company declares dividends to be distributed to shareholders in proportion to their holdings, from the profits earned in that year. Thus, apart from long-term capital appreciation, investing in shares entitles you to the dividend income.3. Liquidity The shares are listed on the stock exchange and can be bought and sold through the exchange platform seamlessly. Share market tips for beginners If you are a beginner in the share market, here are few important stock market investment tips for you to help you guide with your investments1. Define your investment objectives Before considering investing in shares, or for that matter any instrument, it is important that you clearly define your investment objective along with the time frame for it. Investments in the stock market have the potential of higher growth in the long-term but are the extreme volatility in the short-run. If you are looking at investing your money for a fairly long time, you will benefit tremendously by investing in shares as compared to other less volatile assets. As stock markets are volatile in nature, investing for short-term investment needs is not advisable. 2. Assess your risk tolerance When it comes to investment decisions, assessing your tolerance to risk is extremely important as it is individual for each investor. Share markets are volatile and your ability to withstand the fluctuations in the market is crucial.  If your tolerance to risk is low, you are likely to get anxious about your investments; you are more likely to make emotional decisions about investments rather than logical decisions. However, once you start gaining more knowledge about stock market investments and also understand volatility, your perception will evolve considerably and allow you to take more analytical decisions. 3. Understand the basics of Share Market Before you start investing in the stock market, it is important for you to have basic understanding of the stock market and the individual securities in the stock market. Getting familiar with financial terms such as P/E ratio, EPS, CAGR, etc. stock selection strategies and stock order type will help in the research and selection process of stocks.4. Pick the right stocks Investing the shares is easy, but being successful with your investments requires effort. Whether you are seasoned investors or a beginner, stock selection plays an important role in determining the success of your investments. You should do proper research and analysis of the stocks that you are looking to invest in. Various aspects such as financial soundness, quality of management, competitor’s performance, the competitive advantage of the company will help you understand the strength of the company. You should invest in fundamentally strong companies for potentially higher returns.  5. Do not let emotions drive your decision The performance of stocks to some extent is driven by market sentiments. If the market sentiment is bearish, it tends to influence the stock price negatively even if the fundamentals of the company are strong. In such situations, long-term investors should not sell their investments just because the market sentiment is negative. Once you invest in the stock market you should not get influenced by short-term price changes of the securities on the account of speculation, rumours and in general the market sentiments.  6. Keep your expectations real All of us want to achieve the best possible returns from our investments. But at the same time, it is equally important to be realistic about the return potential. Even though some stocks have generated over 100% returns for investors in the past, it does not mean that every investment in stocks will fetch you similar returns. The idea of investing in the stock market is to have positive returns on your savings which can beat inflation in the long-run and help you achieve your financial goals with ease.  7. Diversify your portfolio Diversification is extremely important to optimise the returns on your investments. The basic tenet of financial planning is to have a diversified portfolio in different asset classes to achieve your investment objective by not relying on the performance of a single asset class. Even in the case of shares, you should diversify your portfolio in shares of different companies, sectors, and industries to avoid relying on the performance of one sector.  8. Invest only your surplusYour investments in the stock markets can fetch you high returns in the future. However, unlike fixed-income investments such as bonds and FDs, returns from the stock market are not guaranteed. The higher the chances of returns, the higher are the risk involved. Hence, you should only invest the surplus funds you have into the stock market without compromising on the other investments such as your life insurance, health insurance, emergency funds etc.   The final word Shares should be a part of your investments, as they offer huge growth potential, but they can’t be your only form of investment. You need to diversify your portfolio in various asset classes to get maximise your returns and minimise risk for your investments. Your investment objective, risk profile, time horizon all play an important role in ascertaining how much can you and should you invest shares. If you are wondering where to start, then just get in touch with our financial experts from IndiaNivesh to guide you with your investments.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • Difference Between Portfolio Management Services (PMS) Vs Mutual Funds

    The ultimate goal for all investments is the same – Wealth Creation. But the routes can be different. In this article, we will talk about two popular investment avenues – Portfolio Management Services and Mutual Funds, both of which have the potential to fulfill your financial goals.Mutual FundsMutual Funds pool in money from a group of people and then invest the corpus in various asset categories as per the scheme’s objective. This investment avenue is professionally managed by a team of experts known as “Fund Managers” from Asset Management Companies.How to Invest in Mutual FundsThere are numerous ways to invest in Mutual Funds. Directly through the company’s website Through intermediaries such as brokers or R&T Agents Through online platforms that work as aggregators Portfolio Management ServicePortfolio Management Services (PMS) is a kind of wealth management service. Like mutual funds, they are managed by professionals known as portfolio managers. These experts offer a wide range of curated investment strategies to benefit from the available opportunities in the market.  They can be bifurcated into two categories of services: Discretionary Non- Discretionary If the portfolio manager has complete control over the portfolio and can independently take trade decisions for the customer, it is referred to as Discretionary PMS. In the case of non-discretionary PMS, the portfolio manager does not have the authority to take any portfolio related decisions independently. He/she needs to manage the funds as per the client’s directions. Without the client’s approval, no buy or sell decisions can be taken by the portfolio manager. Portfolio Management Services in IndiaAs per SEBI regulations, only entities who are registered with SEBI for offering Portfolio Management Services in India can provide PMS to customers. Non-Resident Indians can also invest in these products. However, the documentation process is different (and slightly more exhaustive) than resident Indians. They need to open a PIS (Portfolio Investment Scheme) Account for the same.What makes these two investment avenues different?• Regulatory perspectiveMutual Funds are, comparatively, more strictly regulated in comparison to PMS. SEBI closely monitors their activities and investment decisions.• TransparencyBoth Mutual Funds and PMS offer timely disclosures to the clients. In the case of Mutual Funds, clients can get all relevant information such as portfolio disclosures, the commission given to distributors, daily performance data, etc. There are numerous websites through which the performance of each scheme can be tracked. Even in the case of Portfolio Management Services in India, the service provider is required to make periodic disclosures to the clients. The only difference is that it is not available to the general public. This might make it difficult for newbie investors to make an informed decision or identify the best portfolio management services. However, if one reaches out to reputable providers, the credibility of information or quality of services is assured.• FlexibilityIn the case of Mutual Funds, the pooled-in corpus can only be invested in asset categories as per the scheme’s objective. However, in the case of PMS generally there is no such restriction. They need not need to confine their investments to a stated objective or any such stringent terms, unless the theme of the investments is restricted to certain sectors or market cap. This provides flexibility to the portfolio manager to take aggressive calls whenever required. For instance, if they sense risk or volatility and the situation demands, they can decide to maintain a 100% cash position and sell off all the equity holdings.• OwnershipIn PMS, the stocks are held directly by the investor. However, in Mutual Funds, they are held by the AMC or Fund House and the investors receive units of the scheme.• RiskMutual Funds cater to all types of investors. An investor with a high-risk appetite can go for an aggressive equity scheme. Someone who is risk-averse or lower on the spectrum can go for a hybrid or balanced fund. The risk quotient in Mutual Funds is reduced to a certain extent as the risk gets spread across a wide range of stocks.Relatively, investments through PMS are riskier. They are usually a highly concentrated portfolio (consisting of about only 20-30 stocks). However, with higher risk comes the possibility of higher returns with PMS.• Entry BarrierPortfolio Management Services may not be accessible for all retail investors. It is primarily targeted towards HNIs (High net-worth individuals). One can start mutual fund investments with only Rs. 500. However, in the case of Portfolio Management Services, the least investment required is Rs. 50 Lakhs*.• Ease of InvestingInvestments in Mutual Funds can be made easily through multiple channels such as the company's website, through R&T Agents or distributors or with the help of online platforms. However, the process for investment in the case of PMS is lengthier considering the high value of funds that are transacted through these accounts.• Cost StructurePortfolio Management Services are way more customized than Mutual Funds. Mutual Fund charges fees daily as a percentage of AUM and is capped for all schemes. Whereas, the costs involved in PMS is relatively more such as Entry Load, Fund Management expenses, Profit Sharing or Fixed Fee, custodian fees, audit-related fees, brokerage, etc. All these vary according to the provider. However, relatively high returns generated by PMS more than compensate for the costs involved.• TaxationIn the case of Mutual Funds, the investors have taxed basis the type of scheme and the duration for which he/she had remained invested. For instance, in case of equity mutual funds, if one exits from the scheme within the lock-in period (usually 12 months), then 15% tax is applied. However, after that period the proceeds are taxed at 10% if gains exceed Rs. 1 Lakh. (Till the limit of Rs. 1 Lakh it is tax-free)However, the taxation methodology is quite different in the case of PMS. Gains are calculated on every underlying transaction (and not just redemption) done by the portfolio manager. So, each time the portfolio manager sells a share, capital gain (or loss) is calculated for the investor and then taxed accordingly.Which one should you go for?So, is one of these a better option? No. Both Mutual Funds and Portfolio Management Services are managed funds. They have their own set of benefits and targeted towards a different set of investors. The choice between these two should be made after considering factors such as risk profile, investment objective, market understanding, etc. For instance, if you are looking for higher flexibility and customization, PMS may be a better option. On the other hand, if you do not have too many funds at hand but still want to enter into the equity market, Mutual Funds are your best bet.Whatever be your choice, you can seek the help of experts from IndiaNivesh. They are adept at crafting portfolios customized as per the client’s needs and long-term goals.Why should you trust IndiaNivesh with your hard-earned money? Outstanding research experience of more than 11 years State-of-the-art technological tools to keep abreast with the market knowledge Highly skilled experts with the cumulative market experience of 300 years Wide range of financial solutions – broking and distribution, institutional equities, PMS and strategies, corporate advisory, investment banking, and wealth management So, are you looking for the best portfolio management services? Or wondering which is the best mutual funds to invest today? Or still struggling with how to invest in Mutual Funds? Then worry not and just reach out to the team at IndiaNivesh. They will ensure that you realize your financial goals irrespective of the route (PMS vs Mutual Funds) you take. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing. *Effective from 1st Jan 2020.

    read more