PMS vs Mutual Funds: How to Make the Right Decision?

PMS vs Mutual Funds

Investing in the stock market can be risky and intimidating, especially if you’re unsure where to start when picking out stocks. Thankfully, there are many options out there, including investing through portfolio management services and mutual funds, to help you understand what is right for you. To better understand these options, let us get into the details of Portfolio Management Services and Mutual Funds.

What are Portfolio Management Services?

Portfolio Management Services (PMS) are services offered by financial institutions, banks, and brokerage firms, to individuals who want to invest their money in a variety of assets but do not wish to manage the funds themselves. Instead, investors trust portfolio managers to handle their investments by predetermining their goals and preferences. While some investors work with a single portfolio manager, others choose to work with multiple managers at different financial institutions. Each of them oversees a separate part of the investor’s portfolio.

With the wide variety of investment options out there, figuring out where to invest your money can be tricky. Portfolio management services work with your personal situation and risk tolerance to create a custom portfolio designed just for you, making it more likely to work effectively to bring you closer to your financial goals.

There are four kinds of portfolio management services. These include:

  1. Active portfolio management services: The investors who can take the high risk and quest for high returns can select this option. It involves actively analysing every fluctuation in the market.
  2. Passive portfolio management services: This is a safe investment strategy for investors who are looking for stress-free gains. It is a long-term strategy that falls within a low-risk zone.
  3. Discretionary Portfolio management services: This involves investors depending on the portfolio managers to make all investment decisions.
  4. Non-Discretionary Portfolio management services: Here, the investors control all the buy, sell, and holding functions but take advice from the fund managers for suitable investments.

After an in-depth analysis of PMS, let us move on to mutual funds.

What are Mutual Funds?

Mutual Funds are investment funds that pool the money of various investors to collectively put it in stocks, bonds, and other types of investments. Mutual funds offer a diversified portfolio at a lower cost than individual securities and are a great way to invest in the stock market. All you have to do is select the right fund for yourself based on your financial needs. The prospectus of the mutual fund mentions the objective with which it has been set up and the kind of returns it will furnish.

You can put your money into Mutual Funds when you need to invest some extra cash that you don’t know what to do with immediately, or if you have some money saved up and are looking for an investment vehicle that can give you some returns while you keep your cash in savings.

Depending on investor needs and preferences, there are seven types of mutual funds:

  1. Hybrid fund: 

    A hybrid fund is a mutual fund scheme where investment is made in multiple assets, including both equity and debt. This is suitable for investors who want a regular income through their investments. It involves lower risk as compared to other mutual funds.

  2. Growth funds:

    This is a diversified fund that includes assets that operate in the stock market, such as shares. The main goal is capital appreciation and involves significantly less or even zero dividend pay-out. The risk factor is average to high, and so is the return in the long run. It is ideal for investors who have just started their careers.

  3. Income or bond or fixed-income funds:

    This kind of mutual fund focuses on investment in bonds or other fixed-income securities. These are safer investments due to the fixed interest rates. Moreover, investing in Government bonds is safer as compared to corporate bonds.

  4. Gilt funds:

    This mutual fund scheme puts the entire investment amount in Government securities. Due to this, the credit risk is zero. This is a long-term investment most suited for investors with a low-risk profile.

  5. Balanced funds:

    These funds invest in both equity and debt. The return is moderate, and the risk is comparatively low. It is suitable for long term investment.

  6. Money market funds or liquid funds: 

    A liquid fund is a type of debt fund. It is a short-term, low-risk investment that is more or less equivalent to a savings bank account.

  7. Fixed income or debt mutual funds:

    These funds invest a majority of the money in fixed coupon-bearing instruments like Government securities, bonds, and debentures. They have a low-risk-low-return outlook and are ideal for investors with a low-risk appetite looking for a steady income. However, they are subject to credit risk.

PMS and mutual funds involve investment in assets that involve different levels of risk. To know how to determine the overall risk of your portfolio, read our blog here.

What is the difference between PMS and mutual funds?

The work strategies are different for both portfolio management services and mutual funds. Let us see how they differ by comparing them side by side.

Difference between PMS and mutual funds

Now that you have a better understanding of how the two differ, let us see which option is better for you.

Which is better – PMS or Mutual fund?

PMS is an instrument where the amount of investment and risk is high. It is mainly for high net worth individuals with a high-risk appetite. The reward they earn for taking the increased risk comes in the form of high returns.

On the other hand, mutual funds are for investors whose risk appetite is low to moderate. Based on the risk factor and financial goals, the investors can select the fund they wish to invest in.

In a nutshell, both are great options. It depends on you to select the investment that complies best with your time, money, and strength of taking a risk.

TejiMandi offers investment services that help you make financial decisions in an easy and straightforward way. The experts provide a clear and accurate analysis of information that allows you to put your money in a place that offers the highest possible returns.

In conclusion

The single most important way to grow your wealth and protect your assets is by investing them safely. This makes it crucial to choose a broker or financial advisor carefully.

At TejiMandi, we provide active advice on investments, aid portfolio management, and help you grow your wealth seamlessly by investing in the most suitable assets. Reach out to us for more information!

Take out time for sound financial planning and be comfortable with the factors that affect your investment strategies. This is a prerequisite for finding the ideal way to channel your savings.

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