Difference Between Portfolio Management Services (PMS) vs Mutual Funds

Starting your investment journey is one of the most confusing aspects of life. With so many different investment options to choose from, it can be daunting for someone new to make the right decision. To make things more challenging, there are multiple investment options with striking similarities.For instance, several new investors often struggle between Portfolio Management Service (PMS) and mutual funds. Both options can deliver excellent returns and come with the advantage of professional management. But look closely, and you’ll see that these two options have several considerable differences.Three most significant differences are discussed below-

Taxation on mutual funds investments and returns depends on the type of fund and the duration for which it is held. For instance, equity funds have a Long-Term Capital Gains (LTCG) tax at 10% if you remain invested for more than 12 months. The LTCG tax on debt funds is 20% after indexation if the fund is held for more than 36 months.PMS, on the other hand, has a very different tax methodology. Every time your portfolio manager sells any share, gains or losses are calculated and taxed accordingly. Unlike mutual funds, tax is not applicable to redemption, but every time the transactions are made. Calculation of tax on PMS can be quite complicated as it would have to be calculated individually for each of the holdings in your portfolio.

This is one aspect where PMS fares better over mutual funds. With mutual funds, the fund manager can only invest in the asset categories defined by the scheme’s objective. For instance, equity mutual fund schemes can only invest in equity.But with PMS, there are no such restrictions. Your portfolio manager can create a portfolio comprising equity, debt, commodity, etc. This can make it easier for you to create a diversified portfolio.

Mutual funds are required to follow stringent SEBI (Securities Exchange Board of India) guidelines. SEBI closely monitors all the mutual fund schemes and AMCs to protect the investors and prevent any wrongdoings.In comparison, PMS is not as closely monitored. While the disclosure rules for PMS have been recently tightened by SEBI, from the regulatory perspective between PMS vs mutual funds, the latter is more strictly regulated.

Both PMS and mutual funds have their benefits. The decision between the two ultimately relies on what an investor is looking for. Focus on factors such as your investment objective, risk appetite, market understanding, etc., to make the right decision.An investment advisor can help you choose the best as per your individual requirements.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.