Investors can invest in equities with the help of mutual funds (MF) and Portfolio Management Services (PMS), which can beat the average rate of inflation. Although most of the investors understand MF, they lack proper knowledge of PMS and how it is different from MF. This blog helps you to understand the differences between MF and PMS based on numerous parameters.
What are Mutual Funds?
Mutual funds are one of the best investment options that pool funds from investors and invest in multiple and different types of securities to provide higher returns to the investors. Fund managers invest in securities depending on the investment goals of the investors. This investment option offers diversification and ease to investors of all levels.
What are Portfolio Management Services?
PMS services are personalised services of investments that are provided by the top wealth management firms. There is a portfolio manager who tailors the portfolio of the investors and monitors their risk profile, investment preferences, and financial goals.
These services are suitable for high-net-worth individuals (HNIs), Hindu Undivided Families (HUFs), and institutional investors.
Differences Between Mutual Funds and PMS
While both of them fall under the same category of wealth management definition, mutual funds are professionally managed investment options, and PMS are personalised investment services provided by wealth management firms. The table below differentiates both mutual funds and PMS based on some essential parameters:
|
Parameters |
Mutual Fund |
PMS |
|
Function |
Mutual funds pool funds from investors and invest in a diversified portfolio according to the scheme type. |
PMS provides custom investment solutions to fulfil different client needs. |
|
Customisation |
MFs have a standard investment portfolio for all investors in a particular scheme. Investors can hold identical securities according to their investment proportion. |
In PMS, portfolio managers have the flexibility to make individual investment decisions according to their requirements and preferences. |
|
Fee structure |
Mutual funds come with lower fees than PMS. It charges 0.5% to 2.5%. |
PMS has a personalised nature of fee structure and is higher compared to MF. PMS charges 2% to 2.5% fees. |
|
Investment horizon |
Mutual funds are suitable for both long-term and short-term investors. |
PMS is suitable for long-term investors. |
|
Account type |
Mutual funds utilise pooled accounts for maintaining the funds and securities. |
PMS accounts are individually managed, which provides a higher degree of personalisation. PMS uses a separate bank account and a Demat account for each customer. |
|
Minimum investment |
Mutual funds ask for a lower minimum investment and can be started with just INR 500. This makes it accessible to a broader range of investors. |
PMS requires a higher minimum investment compared to MFs. A PMS has a minimum investment amount of INR 50 lakh. |
|
Transparency |
Since investors do not get enough details regarding expenses, MFs are less transparent compared to PMS. |
Using PMS, users can easily access reports of trade, brokerage, and price. Transparent data related to expenses for portfolio management may facilitate informed decision-making for investors. |
Final Thoughts
Mutual funds are an investment option that collects money from investors and invests in different assets and securities. Contrarily, PMS services help investors monitor their risk profile, investment preferences, and financial goals. Both are different based on function, fee structure, transparency, account type, and other factors. The decision of choosing between PMS and mutual funds depends on the position and financial objectives of an investor.
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