Choosing Wisely- Understanding Mutual Funds and Portfolio Management Services
In today's dynamic financial landscape, investors have a plethora of options to grow their wealth. Among the most prominent are Portfolio Management Services (PMS) and Mutual Funds (MF). While both avenues involve investments in stocks and securities, they operate distinctly, catering to different investor profiles and financial goals. Understanding the nuances between PMS Funds and Mutual Funds is crucial for investors to make informed decisions, optimize their investment strategies, and align their portfolios with their unique risk profiles and wealth objectives. Let's delve into a comparative analysis of PMS Funds and Mutual Funds to unveil the advantages, limitations, and suitability of each in varying investment scenarios.
PMS:
A Portfolio Management Service (PMS) is an investment tool that focuses on wealth management for an individual investor. It is specifically tailored as per the requirements of the investors therefore giving them more control and transparency about their portfolio.
The clients that invest through PMSs are termed as high net worth individuals. The minimum ticket size of an investment through PMS is 50 lakhs.
Portfolio Management Services (PMS) funds prove to be efficient in managing tax as investors have direct control over portfolio turnover and capital gains realisation which can in turn help in keeping the tax liabilities in check.
Portfolio Management Services (PMS) funds are highly flexible in nature due to their diverse investment style and personalised management. They provide investors direct ownership of securities and shareholder rights.
Despite their flexibility, PMS funds also have certain limitations like a high management fee, high minimum ticket size, and over-dependency on the skill of the portfolio manager, which can prove to be risky.
Mutual Funds:
Mutual funds are pooled financial instruments managed by professionals that collect money from several investors to invest in various securities including stocks, bonds, money market instruments etc.
Mutual funds offer two primary payment modes- lump sum and SIPs.
- Lump Sum investing refers to investing the entire amount in one go, and the investment is held for a certain lock in period before withdrawal.
- SIP or Systematic Investment Plans involve investing in mutual funds through periodic instalments of equal amounts paid at regular intervals. This helps investors to spread their investment over time, which promotes systematic wealth accumulation.
Mutual funds in India have a minimum investment value of Rs. 100 for lump-sum deposits and Rs. 500 for Systematic Investment Plans (SIPs) as set by the Securities and Exchange Board of India (SEBI).
Due to this small ticket size, mutual funds are a widely preferred choice by retail investors, or people who fall under a lower income group, who can easily deposit small amounts of money and grow their wealth at a suitable pace.
Mutual funds do come with certain limitations. Since they are a pooled investment vehicle, there is lack of customization. They also restrict options for specific needs of investors as they use a standardised approach for all investors, which make them uniform in nature of returns.
Conclusion:
Both PMS Funds and mutual funds serve as great financial instruments that can be used to grow and manage wealth. While PMS funds provide customization and direct ownership of securities, mutual funds offer diversification, liquidity, and accessibility. Investors must carefully evaluate their investment goals, risk appetite and financial circumstances before deciding which of these two investment options is a good fit for them.
Blog By: Ronak Surana, Assisted By: Megh Jadhav