Mutual Funds and PMS are always been the two important aspects of Share Market. To be more specific, they are the terms that are closely related to each other and thus most of the traders and investors failed to figure out the basic difference between them, and conclude which is better for them. Both the PMS and MF has their own benefits and disadvantages which is needed to be sorted out. That’s the reason to broadly elaborate the PMS vs MF issue. Let's have a comparative approach to both of the aspects.
A Mutual Fund meaning is simply a professionally managed investment fund, that lets many investors pour their money to it to buy sets of securities and market instruments etc. This fund lets the investor invest in aspects like equity, bonds, short-term money market instrument, commodities like valuable metals etc. under the scope of Mutual fund investment area, all the investors possess common financial goal. The money of the investors is divided among different asset classes, according to the individual objectives of the investors. Generally, MF is laced with sponsors, trustees, Asset Management Company (AMC) in the form of a trust itself.
Mutual funds are extremely diverging in nature and thus, it ensures to have the least blow of risk factors to the investors investing in it. Anyone can start investing in it since the Mutual Fund returns are quite impressive and to start with, least capital is required, that can easily be afforded by almost everyone.
Literally PMS means an investment where investment assets are matched as per objectives to be accomplished, the specific allocation of assets evenly to institutions and individuals as well setting a premise to balance risks with performance. PMS aims in capitalizing the
market opportunities, giving personal preference to the individual investors, for achieving their personal goals with ease. This scheme is usually designed for High Net Worth individuals since; the minimum investment amount is comparatively much higher. (25 Lakh Rs). Portfolio Management Services in India dominates the market and is preferable for many institutions since the return comes with least risk. PMS is something that can be easily understood as an investment issue, where you just put the money, pay management fees and own a stock to yourself, accompanied with completely expert suggestions and maintenance.
Now, though we have completed our short introduction for both, it still seems no difference at all between the both of the MF and PMS, since we haven’t still dived into the comparative study between the two. Now let’s compare the distinct features of both the former aspects, figuring out the minute details for each of them.
The primary ground distinction between MF and PMS lies in the fee charged for buying assets in either cases or other management charges. Generally, most of the PMS charges around 2-3% for any entry load asset while buying PMS. Apart from it, the Portfolio manager charges around 1-3% depending upon the service provider. Though, the investors can negotiate on the ground of investment volume.
But in case of Mutual Fund generally the fees charged are corresponding to the fixed percentage on asset volume and no negotiations are entertained in most of the cases. Though, Mutual Funds investment can generally propagate through two different pathways, that are- Direct Plans and Regular Plan. The direct plan is somehow like buying goods directly from the manufacturer; thus saving much compared to buying from the regular plan. The later involves imposing some additional charges as per the financial house or middleman. Thus in the former, people will be able to keep savings annually and keep them adding every year round. This signifies the presence of separate NAV of Direct Plan which is somewhat higher than that of the regular plan’s or in terms of expense ratio - Direct plan have lower expense ratio compare to Regular Plan.
In case of Mutual funds vs PMS, the HNIs are eligible to hold stocks specifically as a whole in PMS, whereas in case of `MF, the investors are confidential to just one unit of the so-called stocks (NAV), i.e, those units sum up to form one whole stock. The PMS investor can easily log in their demat account to check the status of their stocks at any point of time. Thus PMS lets you take possession of your invested stock as a separate entity, rather than being one of the co-investors just like as in an MF investment.
A company may want to invest their money simply on one specific stock. This facility is availed only with PMS and not with MF. In PMS, there is no NAV limitation like that, which is present in MF. An investor can exceed the limit of 10% NAV for a single stock. Thus MF deprives a company of holding large stakes, which can easily be covered by PMS.
In reality, both the MF and PMS differ by the initial amount of capital required by a huge difference. The MF requires an extensively low amount of investment capital, while PMS is primarily designed for HNIs who can afford to spend a vast amount on assets. Accordingly, MF investment can initiate with as low as Rs. 500, while PMS investment requires a minimum capital of Rs. 25 lakhs.
Both the PMS and MF have their own individual classifications, which are strategically done for the convenience of the investors and for availing them with diverse choices. In this case, mutual funds are of several different types. Thousands of MF choices and types of Mutual funds structures (Liquid Funds, Equity Funds, Income, Growth, ETF, Gold ETFs, Money market, ELSS (Tax Saving funds) with different category like open-ended, closed-ended etc.) are available for the investors to invest and offered under attractive schemes by different broker houses. Whereas PMS is only of two types-Discretionary PMS and Non-discretionary PMS. Discretionary PMS is the type of PMS where the Portfolio manager is entitled to all the documentary works and is confidential to manage the stocks as per his or her own decision. The Non-discretionary PMS refers to the process where the portfolio manager is nothing but just a financial advisor, who guide you regarding all the documentary works and during the management procedure of your stocks.
PMS is a service that is more accountable than MF investments. How? A PMS Manager is bound to be responsive and directly accountable to the client at any time, the client wants to have clarifications. But in case of MF, Fund managers do not have any such obligation to answer to you.
In case of investments of PMS, the investors are liable to get complete transparency and are eligible for every minute detail, which had been going on with his or her assets. Starting from Sale of shares, exact date and time etc. the investors will be kept updated to all the recent activities to their asset, whereas in case of MF, investors are kept limited to monthly reports and quarterly expense ratios only, which may not be sufficient to track the progress of their fund activities.
The devastating market crash in 2008 was surely a nightmare for many people, and no one might want to face such an issue now. And that’s why; PMS has the flexibility to counter these devastating crashes from happening. PMS is not restricted to already stated objectives and set of terms, but if the PMS Manager thinks suitable, he or she can pull back, call aggressive cash or even can sell off all the equity. But this flexibility is largely absent in the MF investment, which is a major drawback.
In Simple words, in PMS you hold stocks in your demat account, in any negative/profit booking scenario, you can instruct your PM to exit from the current position, but that’s not the case in MF. In MF, you have some lock-in period and need to exit with heavy exit fees or will take a few days extra to exit which will hold you from profit booking at a same time. In MF, profit booking depends on MF managers hand, not in investors hand.
In case of Mutual Fund investment, the investor doesn’t directly hold the stock under their own name, rather they just hold a unit of them, so they generally have a pass-through status, which ensures no tax should be made to incur upon that, while having transactions. But in PMS, the investors directly hold the assets under their names and thus in many cases, when the PM manager does selling or buying, every time there is a minimal imposition of tax.
There is no doubt that, Mutual Funds are typically much diverse in nature than the PMS. Like if we talk about the Equity MF, then there will be at least 40-50 stocks from many sectors, each of which lays their focus on having capital preservation with reasonable returns, but in case of PMS, the range generally lies between 10-30 stocks per strategies or any other money-market instruments.
The above-mentioned discussion aims in clearing all the doubts regarding the terms PMS and Mutual funds and approaching them with a comparative perspective. PMS broadly refers to the management of a large volume of securities bound together as a stock, guided by a Portfolio Manager. In this scheme, the investors own the stock as a whole, to himself, rather than contributing a portion of their money to an investment pool to buy a single stock like that of in Mutual Funds. The former scheme always targets the HNIs since the individual investment volume is pretty large. In the Mutual Fund, investors pool their money cumulatively to a pool to raise a fund for a stock. Thus in both cases, investors are availed with diverse choice ranges and minimal risk factors, though basic difference always prevails.
Last updated on 29th Aug 2018