Investing is one of the best ways to grow your wealth and achieve your financial goals. However, investing can also be confusing and overwhelming, especially if you are not familiar with the different types of investment options available in the market.
One of the most common dilemmas that investors face is whether to invest in portfolio management services (PMS) or mutual funds. Both are popular investment vehicles that offer professional management of your money, but they also have some key differences that you need to consider before making a decision.
In this blog post, we will explain what portfolio management services and mutual funds are, how they work, and how they compare with each other. We will also help you decide which one is best for you based on your risk profile, investment objectives, and preferences.
What are Portfolio Management Services?
Portfolio management services are customised investment solutions that are offered by portfolio managers, who are registered with the Securities and Exchange Board of India (SEBI). Portfolio managers are experts who manage your money by investing it in various securities such as stocks, bonds, commodities, derivatives, etc., according to your specific needs and goals.
When you invest in portfolio management services, you get a dedicated portfolio manager who will design a portfolio for you or for a select group of investors with similar profiles. You will also get regular reports and updates on the performance of your portfolio and the market conditions.
Portfolio management services can be of two types: discretionary and non-discretionary. In discretionary PMS, the portfolio manager has the full authority to make all the investment decisions on your behalf, without seeking your approval. In non-discretionary PMS, the portfolio manager will only advise you on the investment opportunities and execute them only after getting your consent.
What are Mutual Funds?
Mutual funds are collective investment schemes that pool money from many investors and invest it in a diversified portfolio of securities such as stocks, bonds, gold, etc., under the supervision of a fund manager. Mutual funds are regulated by SEBI and follow a predefined investment objective and strategy.
When you invest in mutual funds, you buy units or shares of the fund that represent your proportionate ownership of the fund’s assets. You will also get periodic statements and disclosures on the performance of the fund and its holdings.
Mutual funds can be of various types based on their asset class, risk level, investment style, etc. Some of the common types of mutual funds are equity funds, debt funds, hybrid funds, index funds, sector funds, etc.
How do Portfolio Management Services and Mutual Funds Compare?
Portfolio management services and mutual funds have some similarities and some differences that you need to be aware of before choosing one over the other. Here are some of the key factors that you need to compare:
| Factors | Portfolio Management Services (PMS) | Mutual Funds |
| Minimum Investment Amount | Rs 50 lakh (As per SEBI guidelines) | Can be as low as Rs 500 |
| Customization | More customization and flexibility in portfolio | Fixed portfolio composition by the fund manager |
| Transparency | Offers more transparency with daily portfolio details | Portfolio composition disclosed monthly or quarterly |
| Fees and Charges | Higher fees and charges | Generally lower fees |
| Taxation | Equity-Oriented Investments: | Equity-Oriented Investments: |
| - Short-Term Capital Gains (STCG): 15% if sold within one year | - Short-Term Capital Gains (STCG): 15% if sold within 12 months | |
| - Long-Term Capital Gains (LTCG): 10% (above Rs 1 lakh) if sold after one year | - Long-Term Capital Gains (LTCG): 10% (above Rs 1 lakh) if sold after 12 months | |
| Debt-Oriented Investments: | Debt-Oriented Investments: | |
| - Short-Term Capital Gains (STCG): Taxed at investor’s slab rate if sold within three years | - Short-Term Capital Gains (STCG): Taxed at investor’s slab rate if sold within 36 months | |
| - Long-Term Capital Gains (LTCG): 20% with indexation benefit if sold after three years | - Long-Term Capital Gains (LTCG): 20% with indexation benefit if sold after 36 months | |
| Gold and Other Commodities: | Gold and Other Commodities: | |
| - Short-Term Capital Gains (STCG): Taxed at investor’s slab rate if sold within three years | - Short-Term Capital Gains (STCG): Taxed at investor’s slab rate if sold within 36 months | |
| - Long-Term Capital Gains (LTCG): 20% with indexation benefit if sold after three years | - Long-Term Capital Gains (LTCG): 20% with indexation benefit if sold after 36 months |
Which One is Best for You?
There is no definitive answer to which one is best for you, as it depends on your personal preferences, risk appetite, investment horizon, financial goals, etc. However, here are some general guidelines that can help you make an informed decision:
- Choose portfolio management services if you have a large amount of investible surplus (at least Rs 50 lakh), want more customization and flexibility in your portfolio, are comfortable with higher fees and charges, and are willing to take higher risks for higher returns.
- Choose mutual funds if you have a smaller amount of investible surplus (as low as Rs 500), want more diversification and simplicity in your portfolio, are looking for lower fees and charges, and are satisfied with moderate risks for moderate returns.
Conclusion
Portfolio management services and mutual funds are both viable investment options that offer professional management of your money. However, they also have some key differences that you need to consider before investing in them.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.