Arti Arora CFP | HEAD FINANCIAL PLANNER

PMS or mutual funds is an investment choice that an investor with a sizeable amount of investment has. Plainly speaking, mutual funds is a mass investment option while PMS is an investment option especially for the HNI investor segment.

While both Mutual funds and PMS invest in the stock market, there are many points of difference between them. From the way of investment, minimum amount of investment, way of holding, cost structure, level of customization to other modalities, PMS and mutual funds function quite differently from each other. Hence the question of PMS or mutual funds.

In PMS, the investors hold stocks in their accounts while the mode of holding is units in any mutual fund scheme. The minimum amount of investment in mutual funds is Rs.5000 while the minimum scale in PMS ranges from Rs.25-50 lacs. This very point of difference makes mutual funds far more accessible vis-à-vis PMS.

Mutual funds invest as per their investment objective and any investor who is investing in a mutual fund scheme is investing in line with the same. The question of customization thus does not arise in a mutual fund investment. The case with PMS is however quite different as it is a customized investment option or solution designed for the high net worth individuals wherein different investment accounts are maintained for different investors and any level of customization thus can be made therein. The PMS allows a greater level of flexibility to an investor in that sense.

As per the mode of operation, mutual funds pools money from several investors; in a PMS, the investment accounts of the different investors are managed separately. It is this feature of PMS that allows for customization which also becomes a unique selling proposition for it.

The cost structure in mutual funds is pre-defined and there is no scope of negotiation in the same as it applies uniformly to all the investors in the scheme. There is a distinction between individual & corporate investments and there is a variation in cost structure therein but not otherwise. The different costs related to mutual fund investments and also the scheme performance details are all available in public domain.

However, PMS investments, on the other hand operate differently. While the investors can negotiate the fee with the service providers, the PMS investments are not as transparent and the details of cost & returns are not as openly disclosed.

With the new SEBI regulations regarding the PMS structures, there are various positive changes coming through though. With time, the cost structures in the PMS products will be better rationalised and choice of investment plans are also expected to improve.

To sum it up, in the choice between PMS or mutual funds, it is pertinent to take the above factors into account and see for yourself, which side of the fence you are on. A huge sum of money to invest, seeking flexibility, customisation & cost negotiation and on a look out for alpha returns, PMS is the more suitable option. Looking for more standard & transparent investment options that does not require a huge investment in one go and offer growth potential too, mutual funds fit the bill.

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