Mutual funds vs PMS: Which one should you choose?

Portfolio management service (PMS) is a professional service offered by experienced and qualified portfolio managers, who manage stock portfolios on behalf of the individual investors.

You get a dedicated professional portfolio manager to manage your money whether you choose to invest through a portfolio management service (PMS) or a mutual fund scheme. However, PMS is customisable to some extent as per your need but they have a high ticket size. It requires a minimum investment of Rs 50 lakh. On the other hand, though it isn't possible to customise a mutual fund scheme, there are several types of funds available in the market based on different needs of an investor. You can choose any of them basis your requirement and can invest in them with as low as Rs 500 a month.

Mutual funds carry some advantage over a PMS. Firstly, they are a tax-free entity. All the transactions that the fund manger does - whether he buys or sells any stock, are not liable to taxes. It doesn't affect your tax liability. You are liable to capital gains tax only when you actually redeem your money invested in the fund. But in the case of PMS, all transactions by the fund manager will be treated as your own transaction and will be liable to capital gains tax. Realised gains of equity stocks, if sold within a year, are taxed at a flat rate of 15 per cent. If they are sold after a year, the gains beyond Rs 1 lakh in a financial year are taxed at 10 per cent.

Also, mutual funds are subject to rigourous regulatory scrutiny and compliance. They are mandated to calculate and disclose their NAV on a daily basis. Mutual funds are also mandated to disclose their portfolio every month (fortnightly for debt funds). All this information is available in the public domain. On the contrary, PMS is a private avenue. All its details are available only to the investor and the PMS provider. They are not in the public domain.

Coming to the performance, there are both good and bad portfolio management services. Some might be returning more than the mutual fund schemes of their kind and some might be returning less. It all depends on the skills of the portfolio manager. So you need to choose carefully and be guided with some of the main differentials mentioned above.

However, if you have a huge sum to invest in equities, it is generally advisable not to invest a huge sum in equities at one go and rather spread it over a period of time. This helps reducing the risk of investing at a market high. While this can be easily done through a systematic investment plan (SIP) or a systematic transfer plan (STP) in case of mutual funds, you may have to talk with your PMS provider if they have some arrangement to spread your investment in equities.

This article was originally published on May 16, 2022.