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Should I invest in mutual funds or opt for a portfolio management service?

Dhirendra Kumar highlights the difference between investing in mutual funds and investing through portfolio management service


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I have been investing in both mutual funds and direct equity shares. However, I have lately realised that I am more comfortable with mutual funds. I have accumulated a corpus of around Rs. 35 lakh in direct stocks. Should I hand it over to portfolio management service (PMS) or gradually shift to mutual funds?
- R.B. Singh

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In my opinion, shifting to mutual funds would be a better choice simply because these funds are more tax efficient. When you invest through a PMS, all the short-term gains (gains within one year of making the investments) generated by the portfolio manager will be liable for a 15 per cent of short-term capital gain tax, which will be your liability.

PMS is nothing but giving a power of attorney to an individual to act on your behalf and every transaction will be considered as yours. On the other hand, in the case of mutual funds, you give your money to the fund manager and buy mutual fund units. Here the activity of selling shares by the fund manager is not liable for capital gains tax. You would be liable for capital gains tax only when you sell your mutual fund units.

Besides, mutual funds, in my view, are more intensely regulated and much more transparent. Fund managers are required to disclose the complete portfolios and net asset values (NAVs) of their respective funds every month. Not being able to do it well, they run the risk of investors pulling out their money. Moreover, going wrong with any of the compliance issues, the regulators will actually take them to task.

With regard to mutual funds, you can come to Value Research's website, compare the funds based on their portfolios, their performance in different market phases, their fund managers' track record, etc. PMS, however, is sort of an understanding between the investor and the manager. Having said that, it is definitely regulated but no inference can be made from the performance claims of a PMS because it is unique for every investor.

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