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Should You Invest in PMS as well as Mutual Funds? 

25 July 2022

In India, you can invest in equities through Mutual Funds (MF) or Portfolio Management Service (PMS). 

Through PMS and MF, even though you invest in similar stocks, the implementation and management (of these two schemes) are different, and so are their portfolio construction strategies. 

MFs, though designed by professionals, are not customized. PMS, on the other hand, focuses on personalized funds. The managers here have a collaborative strategy for their clients and create portfolios independently, focusing on each client. 

The beginning limit of MF can be as low as Rs. 500, while the lowest limit for PMS hovers around Rs. 25 lakh, restricting its access to the common man. 

However, should you try to invest in PMS along with Mutual Funds? Let’s find out! 

Should You Go for One or Both of Them? 

MFs and PMS are both guided investment tools that can help you buy stocks in the same general market. But, both have very different approaches. In an MF, you can see a wider variety of stocks, sometimes more than 40-50. And because there are so many options, one can always choose as per their risk appetite and long-term financial goals. 

On the other hand, PMS is much more curated in terms of taste and goals but is much costlier. Generally, PMS portfolios do not have more than 20-30 stocks at one time. Moreover, PMS is usually tailored as per the investor to let them have more control over the composition of their portfolios than MFs. They also have fewer regulatory controls than MFs, making them risker; however, their returns are much greater for the same reason. 

The critical pointer here is that the lowest investment limit in PMS is Rs. 25 lakh, so they remain out of reach for most. 

PMS allows portfolio customization based on your risk profile and your financial needs. Also, they are more flexible when it comes to investment. And that’s why PMS are more likely to outperform the markets and get you better returns. 

Furthermore, PMS only needs to disclose information to the client; the same data is not available to the general public. But the same also makes it harder for one to compare other PMS products. On the contrary, all the data about MFs is public, making it much more transparent. 

And even though PMS may offer high returns, they also attract higher fees and taxes. 

So, now the question is – Should You Invest in PMS or an MF? 

This will depend on your investment corpus, risk appetite, and financial goals. If you have a smaller corpus and do not wish for extensive tax compliance, MFs could be your options. On the other hand, if your corpus runs in 6/7 digits, demands customization, and more, PMS could be your best bet. 

Let us say you have Rs. 1 crore that you want to invest. Now, you could invest in one PMS scheme and multiple MF schemes together, barring low-value MF schemes. This can help you maximize your chances of making a profit from both these investment areas. 

Conclusion 

It is important to remember that you need to be careful when investing money in equities

While the market provides you with MF and PMS as investment vehicles (amongst others), remember that both have their own set of pros and cons. Understand your investment goals and analyze your risk appetite. Consult your investment advisor before investing in PMS or an MF. 

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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