Diff. Between Mutual Fund And PMS
Making money off the market requires certain degree of expertise and a
healthy appetite for risk. While most people start off early and eventually
go on to learn how the market behaves and thereby invest their monies, there
are investors who enter the scenario with large amounts of monies and seek
help from professionals for the purpose of earning above-average returns
from their savings. Towards this end, some opt for portfolio management
services (PMS) offered by various entities registered with the SEBI.
Portfolio management services have equity and debt options. As far as mutual
funds are concerned, they are more tax-friendly. Now let 's see how the two
competitors, portfolio management services and equity mutual funds, differ
from each other, and how they fare against each other.
It's commonly believed that portfolio management services offer customised
services, with many brokerages offering you the choice of different model
portfolios such as large-cap and mid-cap depending on your needs. However,
this is not a scalable model and large portfolio managers won 't do it for
just 50 lakhs. They usually do it for investors who fall under HNI category.
However, you can get certain specific customisation done with 50 lakhs as
well. Mutual funds offer no such options.
Portfolio management services offer complete transparency in money
management. You will be aware of every purchase and sale of shares,
brokerage, date of transaction, portfolio manager 's exact fee amongst
others. This level of transparency also lets you know where your portfolio
manager made you money and where he lost it. In mutual funds, you get a
monthly report of final holdings and the quarterly total expense ratio.
Having said this, it is very difficult to gauge the performance of a
portfolio management service product before investing in it. There is
nothing called a scheme performance since it comprises of individual
portfolios created as per individual needs.
Unlike mutual funds, a portfolio management service is not restricted to a
stated objective and stringent set of terms. This offers flexibility to the
portfolio manager in terms of how and when he wants to invest/pull back your
money. If he senses risk, he can take aggressive cash calls. If the
situation demands, he can even sell off all the equity holdings and maintain
100 % cash position. This is great for protection against market crashes
like the one in 2008. However, it 's rare that portfolio managers take such
bold cash calls.
In portfolio management services, your portfolio is treated as a separate
entity. This prevents others ' action affecting your portfolio. Let 's say,
if a lot of investors are redeeming simultaneously, then the fund manager of
a mutual fund may have to create liquidity by selling off the most liquid
stocks. This changes the fund 's portfolio and can have adverse affects on
the portfolio of the people who stay invested. Whereas in portfolio
management services, the portfolio manager will sell the entire portfolios
of specific clients only, and not affect your portfolio if you wish to stay
Mutual funds have a fixed fee structure. Portfolio management services in
india providers will offer you more than one option with the same fee
Size vs cost:
Mutual funds investments even accept SIPs of INR 500, while portfolio
management services has a mandatory of minimum 50 lakhs.
Mutual funds offer schemes and have a pass through status, which means a fund
manager may buy and sell stocks any number of times without incurring tax.
Whereas in the case of portfolio management services, it 's you holding
stocks in your name, so every time the portfolio manager sells a share,
there is capital gain or loss.
Portfolio management service managers are directly answerable to you, whereas
mutual fund managers have no such obligations.
So now that you know how mutual funds and portfolio management services
differ from each other, spend good amounts of time in understanding the
market, seek professional help in this regard, and take a call. Whatever be
your choice, remember that you will not only have to invest monies, but also
time if you really want to reap monetary benefits from market movements.