PMS Vs Mutual Fund: What To Choose?

Portfolio management service (PMS) and mutual funds are popular avenues to park money with lucrative stocks and bonds. Though both are indirect means of investing money in the market, they follow different underlying concepts and have a distinct model.

As an investor, it is important to gain insights into their fundamentals to understand how they work. Subsequently, investors should determine the primary differences between PMS and mutual funds to pick a better alternative. Also, it will help resolve the raging PMS vs mutual fund debate once and for all.

PMS – In Brief

Portfolio management services are offered by professionals who are experienced in managing an investment portfolio. Under this setup, investors enter into an agreement with the portfolio manager, who then helps investors customise their portfolio to meet investment goals.

Notably, there are three types of PMS –

  • Discretionary: In this service arrangement, the portfolio manager makes investment-related decisions on behalf of the investor.
  • Non-discretionary: In this service setup, all investment-related decisions rest entirely on investors, who, in turn, directs the portfolio manager.
  • Advisory: Portfolio managers are entrusted to provide timely advice to investors in this service arrangement. However, the choice of investment instrument and execution lies entirely on an investors’ shoulders.

KredX serves as an investment marketplace that connects investors with leading portfolio managers. Investors have the flexibility to select the best-suited fund manager as per their investment strategy, profile, and track record.

Mutual Funds – In Brief

These are professionally managed investment schemes. Mutual funds pool money from multiple investors and invest the same into different asset classes including, bonds, stocks, and money market instruments.

The decision regarding which assets must be bought by a mutual fund rests entirely on the fund manager. The most common types of mutual funds include –

  • Equity funds: These funds mostly invest in stocks and rest in fixed-income generating instruments.
  • Debt Funds: A larger share of resources are allocated to fixed-income instruments and the remainder in stocks.
  • Index Funds: Mostly stocks and bonds that tend to mimic the composition and performance of a popular index.
  • Balanced Funds: These funds invest in both equities and debt instruments as per the investor’s requirements.

Other popular mutual funds include fund-of-funds, speciality funds, and fixed-income funds. Following this, investors should check the differences between portfolio management services and mutual funds to gain a better idea about PMS vs mutual fund.

Major Differences Between PMS And Mutual Funds:

These are some of the most important parameters that help identify the differences between PMS and mutual funds.

Parameters

Portfolio Management Services

Mutual fund

Size of the investment 

One must invest at least Rs. 50 lakhs. 

Investors can deposit an amount as low as Rs.500 by opting for the SIP route.

Risk

Risk is optimised per an investor’s suitability. 

It is relatively less risky because of portfolio diversification.

Transparency

Portfolio management services ensure complete transparency. Investors can easily track the purchase and sale of securities, date of transaction, brokerage, manager’s fee, etc. This helps investors keep a tab on the revenues and expenditures. 

Mutual fund investors receive a monthly report of their final holdings and total expense ratio (quarterly). 

Customised solutions

Portfolio management services extend customised solutions. Investors can pick either a large-cap or mid-cap portfolio depending on their requirements. 

Mutual funds do not necessarily come with such customisable options.

Flexibility

PMS does not come with strict terms or fixed objectives. This allows managers to take aggressive cash calls amidst impending risks, invest or even maintain a 100% cash position. This offers protection against major market crashes. 

Mutual funds come with strict terms and follow fixed objectives. Hence, there is not enough flexibility for fund managers.

Accountability 

PMS managers are directly answerable to investors.

Mutual fund managers do not have any obligation to answer to investors directly.

Taxability 

Every time the manager sells a share, investors realise a capital gain or loss, which subjects them to taxation. 

The schemes have pass-through status. It allows fund managers to buy and sell stocks multiple times without attracting any tax. Instead, investors incur tax on selling fund units.

Suitability

PMS is most suited for affluent investors with a high net worth. This niche segment often includes HUFs, sole proprietorship firms, partnership firms, institutional entities, etc.

Mutual funds are more suitable for general investors.

Individuals should pick a suitable option based on these differences between PMS and mutual funds. They can initiate their hunt for the most suited portfolio managers on KredX’s digital platform if they opt for PMS.

FAQs on Corporate Bonds:

A. It is often challenging to draw a comparison between these two investment avenues. PMS is not suitable for everyone. Investors with substantial wherewithal and high net worth are among the few who invest in PMS. However, mutual funds do not require high-value investments. One can invest in MF schemes starting with Rs.500.