A lot has been discussed and told about the mutual funds, but a very few of us know about PMS and for whom they are meant for. In this article, we will study the difference between the portfolio management services and mutual funds. But before that, let’s dive into the details of what they actually are.
Portfolio Management Services and Mutual Funds, both are the schemes that let the investors invest in the stocks or bonds. Even though both are the indirect methods of getting exposure to the stock market, there is a stark contrast between the two.
PMS- It is a kind of wealth management service that is managed by the experts, which offers specialised advice on how to manage the investment. There are two kinds of PMS services available in the market
- Discretionary Portfolio Management Services – In discretionary PMS services, the portfolio manager individually manages the funds of the clients depending upon his professional skills.
- Non-Discretionary PMS- The portfolio manages the fund according to the directions issued by the client. The portfolio manager can’t buy or sell the stocks as per his whims and wishes; he has to refer to the client to move ahead.
Mutual Fund– the mutual fund is a professionally managed investment scheme run by the asset management company that pools together the investment of different people and invest it in the money market instruments or equity schemes depending upon the investment objective.
Difference between portfolio management services and mutual funds
- Transparency– Mutual funds are strictly regulated by the market watchdog SEBI, so these funds are transparent in nature and on the other hand, PMS are not very transparent in their disclosures.
- To whom they are meant for– PMS is meant for the high net worth individuals because the minimum ticket investment that an investor needs to pool in is Rs 25 lakh, while the mutual fund can be started from as low as Rs 500.
- Charges levied- As compared to mutual funds, PMS charges and fees are high. It charges at every stage, for example, the investor needs to pay an entry load when he enters into the PMS scheme and fund management charges to the providers depending upon the corpus invested, while mutual funds are subject to minimal charges which can be easily afforded by the investors.
- Profit sharing– PMS schemes also have profit sharing agreements with the investor, wherein the fund manager charges a certain amount or fees on the returns generated by the fund. There is no such profit-sharing agreement in the mutual funds.
- Different options for different investors– Mutual Funds offer several options depending upon the risk appetite of the investors. For example, an aggressive investor can invest in the equity-linked saving schemes, while a risk-averse customer can choose balanced or other less risky schemes. PMS investments are subject to more risk and volatility, and there are not many options available to the investor. Further, SEBI has introduced several restrictions on the mutual funds that guide the investor’s investments; however, the government hasn’t imposed any such caps on PMS.
- Evaluation– Portfolio Management Services portfolio is difficult to evaluate as the retail investor doesn’t have access to the data, while mutual funds are simple to understand and are transparent in nature.
Portfolio Management Services is still at a nascent stage in India and need to undergo various developmental changes to become eye-candy among the investors. Still, its immense growth will make sure that it comes at par with mutual funds in India.a