Mutual Fund & PMS, both are portfolio based investments i.e. investment is done on more than one stock or company. Often people have question about the fundamental difference between these two.

  1. Diversified V/s Concentrated Portfolio: Mutual Fund fundamentally is a diversified portfolio. It focuses on optimum return by taking minimum risk with the use of diversification strategy. Although stock selection, number of stock and combination percentage of equity & debt vary by scheme type. But it still focuses on variety. PMS on other hand is more concentrated effort.
  2. Volatility: Conviction of the fund manager in PMS plays a very important role. He/she sometimes take higher amount of risk by taking position in the stocks which are emerging leaders and hence it goes through relatively higher amount of fluctuation. Mutual Fund on the other hand faces relatively less volatility.
  3. Degree of Risk: The risk involved with PMS is relatively higher as it is invested with more conviction by a methodology or sector. It bats on fewer stocks with higher chances of superior returns. Mutual Fund on the other hand tries to avoid higher level of risk by diversifying its position on more number of stocks.
  4. Taxation: In Mutual Fund, taxation is levied only at the time of final exit. Whereas, in PMS the investment is done on the client’s own demat account. Hence, every transaction is taxed be it short term or long term.
  5. Investment Size: As per the latest SEBI guideline, minimum investment size for PMS is Rs. 50 Lakh. Mutual Fund investment can be started even with Rs. 1000/- or less!
  6. Regulation: Considering the large number of investors, Mutual Funds are tightly regulated compared to PMS. This does not mean that PMS is not regulated. SEBI has very strict norms for PMS investment. But it is assumed that PMS investment is for HNIs, and they are comparatively more mature compared to investor with less investment capacity. (Although it is not always true. Psychology of the investor plays a very important role here.)

What is good investment for an individual out of these two? Well, there are no standard answers as no financial product is bad, if it is considered based on individual’s need and risk appetite.

 

To know more about PMS and Mutual Fund, you can contact us on 9879956949 or email us on hardik@niveshplanner.com.