Mutual funds vs PMS: Which One is Better?

While both options allow investors to grow their wealth through stocks and other financial instruments, they differ in their approach, customisation, cost, and risk. This guide will help you understand the differences between mutual funds and PMS, enabling you to choose the best option for your financial goals.

What Are Mutual Funds?

Mutual funds collect investments from multiple individuals and invest in diversified assets like stocks, bonds, and other securities. These funds are managed by professional fund managers and cater to different investment needs.

Types of Mutual Funds

What Are Portfolio Management Services (PMS)?

PMS is a personalised investment service tailored to an investor’s risk profile, financial goals, and investment preferences. With PMS, a dedicated portfolio manager actively manages investments directly allocating funds in stocks, bonds, and other assets. This offers more flexibility than mutual funds.

Types of PMS

Key Differences Between Mutual Funds and PMS

Here’s the detailed comparison to help you answer “Is PMS better than mutual funds?” —

Factors to Consider Before Investing in PMS

• Investment Corpus: PMS requires a significant investment (minimum AED 241,084*)
• Risk Appetite: PMS involves higher risk due to its concentrated portfolio
• Investment Expertise: Understanding the complexities of PMS is crucial
• Cost: Higher management fees and performance-based fees apply
• Liquidity: PMS investments may have lower liquidity compared to mutual funds

*AED to INR rates are subject to variation

Factors to Consider Before Investing in Mutual Funds

• Investment Goals: Choose funds that align with financial objectives
• Risk Tolerance: Different mutual funds carry varying risk levels
• Investment Horizon: Mutual funds are generally more suited for long-term investments
• Liquidity: Easier to buy and sell compared to PMS
• Tax Benefits: If you are an NRI investing in India, some mutual funds offer tax-saving benefits under Section 80C

Should You Invest in Mutual Funds, PMS, or Both?

The right choice ultimately depends on your financial situation and investment goals —

• Choose Mutual Funds If: You have a smaller corpus, prefer simplicity, and want a diversified portfolio with lower fees
• Choose PMS If: You have a high investment corpus, desire a personalised portfolio, and are comfortable with higher risk
• Consider Both If: You have substantial funds and want a mix of customised and diversified investments

Conclusion

Both mutual funds and PMS offer distinct advantages. Mutual funds provide a cost-effective, diversified investment route suitable for all investors, while PMS offers personalised strategies for high-net-worth investors. Before investing, consider your risk appetite, financial goals, and investment horizon. Seeking guidance from a financial advisor can help you make an informed decision that aligns with your financial aspirations.

Frequently Asked Questions