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Mutual funds and portfolio management services (PMS) are popular ways to invest in profitable stocks and bonds. Though they are both indirect methods of investing in the stock market, they have distinct underlying concepts and models.
It is essential for an investor to gain an understanding of their fundamentals in order to understand how they work. In order to choose a better alternative, investors should first determine the primary differences between PMS and mutual funds. It will also assist in finally resolving the raging pms vs mutual fund debate.
Difference between PMS and Mutual Fund
Portfolio Management Service
Portfolio Management Services (PMS) is a customized portfolio management service. Professionals with experience managing investment portfolios provide portfolio management services. Investors enter into an agreement with the portfolio manager, who then assists them in customizing their portfolio to meet their investment objectives.
Typically, PMS products are divided into two categories: discretionary and non-discretionary. In discretionary PMS, the portfolio manager selects stocks and bonds, as well as the timing of their purchase, at his discretion.
The portfolio manager in a non-discretionary PMS only suggests investment ideas to the investor. The portfolio manager executes the trade on behalf of the investor once he has given his approval.
Mutual Fund
Mutual funds pool money from many different investors and invest it in a variety of asset classes, such as bonds, stocks, and money market instruments. And it is entirely up to the fund manager to decide which assets a mutual fund must purchase.
PMS vs Mutual Fund
| Basis | Portfolio Management Services | Mutual Fund |
| Minimum Investments | Rs 50 lakh | Rs 500 |
| Customized | PMS gives customized services they offer us different model portfolios i.e Large-cap, mid-cap according to our need | There is no customization |
| Transparency | There is complete transparency available in PMS as they Provide complete details of every activity eg. exact date of every purchase and sale of shares, brokerage, it also let us know that where the fund manager has lost our money and made money for us. | Where in mutual fund we would never know these things we get monthly reports of our units holding only, it is difficult to find out an exact sale and purchase made by the fund manager from our money. |
| Flexibility | In PMS fund manager is not restricted to a rigid set of terms .The fund manager can take decisions whenever he feels there is a risk in the market than he may shift his position from equity to cash. | But in a mutual fund, the fund managers are restricted with high norms and condition of regulators They can’t take any decision on his own |
| Fee structure | PMS may offer you more than one option with the same fee structured | Mutual funds have a predetermined fee structure. |
| Tax | PMS stock is held by the investor itself, so every time the portfolio manager sells a share, there is a capital gain or loss and the tax liability will be borne by the investor accordingly. | The schemes have pass-through status. It permits fund managers to buy and sell stocks multiple times without incurring any tax consequences. Instead, investors are taxed when they sell fund units. |
| Accountability | In PMS managers are directly answerable to the investor | In mutual fund managers have no such obligations |
| Suitability | PMS is best suited for high-net-worth affluent investors. HUFs, sole proprietorship firms, partnership firms, institutional entities, and other entities frequently fall into this niche. | Mutual funds are a better option for the general investor. |
Frequently Asked Questions (FAQs):
1. Is PMS better than mutual funds?
Both, Mutual Funds and PMS are well-managed investment instruments with advantages and disadvantages as mentioned in the above table. If investors having a good corpus are looking for a focused and customized portfolio (which can be altered in time to time basis), they should go with PMS, however, Mutual Funds are recommended for small investors who are looking for professional advice but they do not have large corpus to invest and are comfortable with the general portfolio. Both, PMS and Mutual Funds have the potential to beat the market in the long-run, so for more clarity, one can take advice from a Financial Distributor.
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