PMS Vs mutual funds – Which one is for you?

PMS or mutual fund, which one is meant for me? It’s a question that has crossed many minds. But before we answer this, let’s understand the difference between PMS and mutual funds.

Mutual Funds are pooled funds from investors and have a pre-defined investment strategy based on the fund objective. They have a relatively low minimum investment, typically starting from Rs 500. Mutual funds are designed to cater to a broader investor base, and they usually offer periodic disclosures for transparency. They charge management fees and expense ratios.

On the other hand, Portfolio Management Services (PMS) provide individualized portfolios with a customized investment strategy based on the client’s goals. PMS requires a high minimum investment, usually starting from Rs 50 lakh. It is preferred by high net-worth individuals (HNIs) seeking more direct access to their investment advisors/fund managers. PMS offers full transparency and charges management fees along with performance fees.

10-year period

From past data, it’s evident that Aequitas India Opportunity PMS has outperformed the Nippon India Small Cap Fund mutual fund. Aequitas India Opportunity PMS had an annualized return of about 35%, whereas Nippon India Small Cap Fund mutual fund had a return of 26%.

5-year return

Over 5 years, if you had invested Rs 1.5 crore in the top 5 PMS Multi Cap funds on April 1, 2019, the report suggests you would have made Rs 5 crore and above. Similarly, investing the same amount in an MF scheme could fetch you a return of Rs 5 crore and above. This comparison of 5-year data shows that there hasn’t always been a significant outperformance of PMS over MF; many times, returns were close too.

1-year return basis

On a 1-year return basis, we can see that the highest-performing PMS has given returns of over 100%, whereas the highest-performing MF has given returns of over 69%.

Conclusion

Analyzing the data from 1 year, 5 years, and 10 years comparing PMS and mutual fund small-cap performance, we can understand that PMS has been outperforming mutual funds. At times, they have given exceptional returns, while at other times, the returns were very similar. When choosing one, investors need to analyze their own financial needs as PMS generally deals with higher ticket sizes.

In recent times, the PMS/AIF industry has seen significant growth, despite higher expenses compared to mutual funds. High-ticket investors prefer having more direct access to their investment advisors/fund managers rather than being seen as one of the millions of investors invested in a mass product.

On the other hand, with stable returns, mutual funds are easier to invest in. Additionally, they offer the facility of SIP/step-up SIP for investors.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.