Investing in the stock market can often feel risky and intimidating, especially if you are unsure where to begin or how to select the right stocks. For most investors, managing a portfolio independently requires time, market knowledge, and emotional discipline. Something not everyone is comfortable with. Fortunately, there are structured investment options available, such as Portfolio Management Services (PMS) and Mutual Funds, which allow investors to participate in the markets with professional support.
Both PMS and mutual funds are popular investment avenues in India, but they cater to very different types of investors. Understanding how they work, how they differ, and which one suits your financial goals is crucial before making a decision. Let us explore both options in detail.
What are Portfolio Management Services?
Portfolio Management Services, commonly known as PMS, are professional investment services offered by financial institutions, banks, and brokerage firms. These services are designed for investors who want personalised and customised investment solutions but do not wish to manage their portfolios on their own.
In PMS, investors hand over their capital to a professional portfolio manager after clearly defining their investment goals, risk appetite, and time horizon. The portfolio manager then constructs and actively manages a tailored portfolio on the investor’s behalf. Unlike pooled investments, PMS portfolios are maintained in the individual investor’s name, offering higher transparency and ownership.
With numerous investment avenues available in the market, deciding where to allocate money can be challenging. PMS helps bridge this gap by aligning investment strategies with an investor’s personal financial situation. This customised approach makes PMS particularly suitable for investors seeking focused strategies rather than standardised products.
Types of Portfolio Management Services
Portfolio Management Services in India are broadly classified based on the investment approach and the level of control an investor wishes to retain. Understanding these types helps investors choose a structure that aligns with their risk appetite and involvement preference.
Active Portfolio Management Services
Active PMS is designed for investors who are willing to take higher risks in pursuit of superior returns. In this approach, portfolio managers continuously track market movements, company fundamentals, and macroeconomic factors. Investments are actively churned based on opportunities and risks, making this suitable for investors who seek aggressive wealth creation and can tolerate volatility.
Passive Portfolio Management Services
Passive PMS follows a long-term, low-churn investment strategy. The portfolio is structured around a predefined theme or benchmark and requires minimal intervention. This approach suits investors looking for steady returns with relatively lower risk and less frequent portfolio changes.
Discretionary Portfolio Management Services
In discretionary PMS, investors delegate full authority to the portfolio manager. All buy, sell, and hold decisions are taken by the manager based on the agreed investment mandate. This is ideal for investors who prefer a hands-off approach and trust professional expertise to manage their capital.
Non-Discretionary Portfolio Management Services
Non-discretionary PMS allows investors to retain control over investment decisions. The portfolio manager provides research, recommendations, and insights, but execution happens only after investor approval. This structure suits investors who want expert guidance while remaining actively involved.
What are Mutual Funds?
Mutual funds are investment vehicles that pool money from multiple investors and invest it across equities, debt instruments, or a combination of both. These funds are managed by professional fund managers and are regulated by SEBI, ensuring transparency and investor protection.
Mutual funds are one of the most popular investment options in India because they offer diversification at a relatively low cost. Instead of investing directly in individual securities, investors gain exposure to a basket of assets, reducing overall portfolio risk.
Each mutual fund scheme operates with a defined objective mentioned in its offer document. Investors can choose funds based on their financial goals, risk tolerance, and investment horizon. Mutual funds are suitable for both beginners and experienced investors due to their flexibility and accessibility.
Mutual funds are often used when investors want to invest surplus cash, build long-term wealth, or earn stable returns without actively tracking markets.
Types of Mutual Funds
Mutual funds in India are categorised based on their investment objective, asset allocation, and risk profile. Choosing the right type depends on an investor’s financial goals, time horizon, and risk tolerance.
Hybrid Funds
Hybrid funds invest in a combination of equity and debt instruments. The objective is to balance growth and stability. These funds are suitable for investors seeking moderate returns with controlled risk and, in some cases, regular income.
Growth Funds
Growth funds primarily invest in equities with the aim of long-term capital appreciation. They usually reinvest profits instead of paying regular dividends. These funds carry moderate to high risk and are suitable for young investors or those with a long investment horizon.
Income or Bond Funds
Income funds focus on fixed-income securities such as bonds and debentures. They aim to provide steady income with relatively lower risk compared to equity funds. Government bond exposure makes them safer than corporate bond funds.
Gilt Funds
Gilt funds invest exclusively in government securities. Since they carry no credit risk, they are ideal for conservative investors. However, returns may fluctuate due to changes in interest rates.
Balanced Funds
Balanced funds maintain a relatively stable allocation between equity and debt. They aim to offer moderate growth while managing downside risk, making them suitable for long-term investors with a balanced risk appetite.
Money Market or Liquid Funds
Liquid funds invest in short-term money market instruments and are considered low-risk. They are commonly used to park surplus funds for short durations and offer better liquidity than traditional savings accounts.
Fixed Income or Debt Mutual Funds
Debt mutual funds invest mainly in fixed coupon-bearing instruments such as government securities, bonds, and debentures. These funds suit investors seeking stable returns with lower volatility, though they remain subject to interest rate and credit risk.
Read Also: Stock Investment vs Mutual Funds: What’s the Better Option for Your Portfolio?
What is the Difference Between PMS and Mutual Funds?
Although PMS and mutual funds aim to grow investor wealth, their structure, strategy, and target audience differ significantly.
In PMS, portfolios are customised and managed individually, whereas mutual funds follow a common investment strategy for all investors in a scheme. PMS investments usually require a minimum investment of ₹50 lakh, as mandated by SEBI, while mutual funds can be started with amounts as low as ₹500 through SIPs.
PMS portfolios often hold concentrated positions and may have higher volatility, while mutual funds are diversified by design. PMS offers greater transparency as investors can see every stock held in their portfolio, whereas mutual funds disclose holdings periodically.
Fee structures also differ. PMS typically charges a fixed fee or performance-based fee, while mutual funds charge an expense ratio that is regulated by SEBI.
Which is Better – PMS or Mutual Fund?
There is no one-size-fits-all answer to this question. PMS is best suited for high net worth individuals (HNIs) who have a higher risk appetite, larger capital base, and the ability to stay invested through market volatility. The potential reward for taking higher risk comes in the form of potentially superior returns.
Mutual funds, on the other hand, are ideal for investors with low to moderate risk tolerance. They offer flexibility, affordability, and diversification, making them suitable for salaried individuals, first-time investors, and those with long-term financial goals.
In essence, both options are effective investment vehicles. The right choice depends on your financial goals, investment horizon, capital availability, and comfort with risk.
Who Should Choose PMS vs Mutual Funds?
Portfolio Management Services are best suited for high net worth individuals who have larger investable surplus and a higher risk appetite. Investors who prefer a customised portfolio, are comfortable with market volatility, and want active, strategy-driven management may find PMS more suitable.
Mutual funds, on the other hand, are ideal for retail and first-time investors. They offer diversification, professional management, and regulatory protection at a lower cost. Mutual funds work well for investors with limited capital, long-term financial goals, and those who prefer a simple, hands-off investment approach.
Simply put, PMS focuses on personalisation and higher risk-return potential, while mutual funds prioritise accessibility, diversification, and ease of investing. Choosing the right option depends on your capital, risk tolerance, and involvement preference.
Read Also: Basket Investing vs Mutual Funds: Which is a Better Investment Strategy?
Conclusion
Investing is one of the most important steps towards building long-term wealth and protecting your financial future. Whether you choose PMS or mutual funds, it is essential to align your investment decisions with your risk profile and objectives.
Selecting the right advisor or platform is equally important. At TejiMandi, we provide expert-driven portfolios to help investors grow wealth responsibly.
Taking time for sound financial planning and understanding how different investment strategies work is the foundation for successful investing. When you are comfortable with the risks and expectations, choosing the right investment path becomes much easier.
FAQs
1. What is the minimum investment required for PMS in India?
The minimum investment for PMS in India is ₹50 lakh, as per SEBI regulations.
2. Are mutual funds safer than PMS?
Mutual funds are generally less risky due to diversification, while PMS portfolios can be more concentrated and volatile.
3. Can retail investors invest in PMS?
Yes, but PMS is more suitable for high net worth individuals due to the high minimum investment requirement.
4. Do PMS offer higher returns than mutual funds?
PMS can offer higher returns, but they also carry higher risk and are not guaranteed to outperform mutual funds.
5. Which is better for long-term wealth creation?
Both PMS and mutual funds can create long-term wealth. The right choice depends on your risk appetite, capital, and investment goals.
