If you have been wondering how to invest your money between the two options – portfolio management services (PMS) and mutual funds, this article can offer you a clear insight into their differences. While both the investment instruments carry several benefits and can aid in wealth creation, their suitability can differ for different people depending on a host of factors. Read on to find out more.
Points of difference
Portfolio Management Services
Mutual Funds
Meaning
Portfolio management services are a type of investment management service. PMS is managed by a portfolio manager. The manager manages the investment, diversifies by investing in stocks, fixed income securities, and cash, and uses diverse investment strategies to earn returns.
A mutual fund scheme is offered by an Asset Management Company (AMC). An AMC pools in money from different investors and invests it further in different securities like stocks, bonds, etc. Mutual funds allow investments in 2 forms – in a lump sum and through a SIP, also known as a systematic investment plan.
Types
There are 4 types of portfolio management services in India:
Discretionary Portfolio Management
Non-Discretionary Portfolio Management
Active Portfolio Management
Passive Portfolio Management
There are 3 main types of mutual funds in India, as classified by the Securities and Exchange Board of India (SEBI):
Equity Mutual Funds
Debt Mutual Funds
Hybrid Mutual Funds
Minimum investment
The minimum investment for PMS is Rs. 50 lakhs.
Mutual funds, on the other hand, allow a minimum investment of only Rs. 500 for a SIP as well as a lump sum investment.
Risk
PMS may carry comparatively more risk. Firstly, they require a huge investment. Secondly, the portfolio in PMS is heavily concentrated with stocks. This increases risk.
Mutual funds can cater to different risk levels. For instance, equity mutual funds can carry a high risk. Debt mutual funds are comparatively less risky. And, hybrid mutual funds carry moderate risk.
Taxation
PMS stocks are owned directly by you and not the portfolio manager. So, whenever you make a sale, you are liable to pay tax on it.
In the case of mutual funds, fund managers buy and sell stocks several times. However, there is no tax levied on these sales. You only pay capital gains tax when you redeem your investment.
Associated costs
PMS may charge entry load, profit-sharing fee, fund management expenses, custodian fees, brokerage, audit fees, etc.
Mutual funds generally only charge an expense ratio.
What is the better choice?
PMS requires a higher investment value and can also carry more risk. So, this may be a good option for high net worth investors only. Mutual funds, on the other hand, have something to offer to everyone, irrespective of the income or risk appetite.
To sum it up
Now that you know the differences between mutual funds and PMS, make sure to choose the right option that can align with your goals. You can also download the Tata Capital Moneyfy app to manage all your investments in one place.
