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 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 Funds
There are numerous ways to invest in Mutual Funds.
Portfolio Management Service
- Directly through the company’s website
- Through intermediaries such as brokers or R&T Agents
- Through online platforms that work as aggregators
Portfolio 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:
- 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 India
As 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 perspective
Mutual Funds are, comparatively, more strictly regulated in comparison to PMS. SEBI closely monitors their activities and investment decisions.
Both 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.
In 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.
In 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.
Mutual 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 Barrier
Portfolio 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 Investing
Investments 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 Structure
Portfolio 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.
In 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.