One of the most frequent confusions that investors encounter nowadays is choosing between portfolio management services (PMS) and mutual funds. Mutual funds and portfolio management services (PMS) both help to create wealth, but they differ greatly in terms of operation, risks, and other parameters. This blog provides an in-depth comparison between PMS and mutual funds.
What is PMS?
PMS in India is an investment choice that provides specialised investment solutions for your risk tolerance and investment goals. A PMS is usually appropriate for institutional investors or high-net-worth individuals (HNIs) who have the capability to invest INR 50 lakh minimum for the scheme.
There are 2 types of PMS in India. These are discretionary PMS and non-discretionary PMS. In discretionary PMS, the portfolio manager manages all of your investments. Conversely, in non-discretionary PMS, the portfolio manager advises you on where you should invest and how to manage your portfolio.
What are Mutual Funds?
Mutual funds invest in a variety of securities by pooling the money of investors. The fund houses invest the money in debt, stocks, or other asset classes, depending on the scheme type. A qualified fund manager is in charge of overseeing these funds.
Depending on their risk tolerance and investing goals, investors can choose from a variety of mutual fund options. Some of the common types of mutual funds are equity funds, hybrid funds, debt funds, index funds, and sector funds.
Differences Between PMS and Mutual Funds
Before wondering how to start PMS in India or which mutual fund scheme is best for you, you must choose between these two investment options. The table below differentiates PMS and mutual funds:
Parameters
PMS
Mutual Fund
Function
To meet the demands of investors, PMS offers customised investment options.
Mutual funds invest in a wide range of assets by pooling investor capital.
Investor Type
HNIs
All types of investors
Cost
High
Relatively low
Risk
High risk
Moderate, depending on the mutual fund scheme
Diversification
Limited
High
Investment Horizon
Appropriate for the long-term horizon
Appropriate for short and long-term investment horizons
Transparency
High
Moderate
Which One Should You Choose Between PMS and Mutual Funds?
Choosing between PMS and mutual depends on you. If you are an HNI and considering tailor-made investment options with higher returns, you must choose PMS. PMS is designed for larger investments and is highly risky.
On the other hand, mutual funds are appropriate for regular investors. You can choose mutual funds over PMS if you want ease of entry, diversification in portfolio, and higher regulation.
Final Thought
While choosing between PMS and mutual funds, you must keep in mind that each has its own advantages and disadvantages. Therefore, it is recommended to analyse your risk tolerance and your investment objectives. Before investing in a PMS or an MF, contact a financial advisor so that you can reduce your investment risks and generate higher returns.
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