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Finance

Navigating Wealth Creation- A Comparative Analysis of Mutual Funds and PMSs

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The two most prominent methods of wealth generation in the modern financial world are PMSs (Portfolio Management Services) and MFs (Mutual Funds).

Mutual funds:

  • A mutual fund refers to a collective or pooled investment vehicle that collects funds from many investors and invests it into equities, bonds, government securities and money market instruments.

  • The final investment made in mutual funds is treated as a pooled total of all investors' accounts by the fund managers, as these funds combine investments from multiple individuals. The income or gain is distributed equally amongst all investors.

  • MFs have a portfolio of around 40-70 stocks on average across various sectors, and an AUM of about 40-50 lakh rupees. The CAGR is 13%.

  • There are various types of mutual funds, like open, closed, load, no-load etc. Investors can choose between these to select which one best aligns with their investment style and financial goals.

Portfolio Management Services (PMSs):

  • Portfolio Management Services (PMSs) mainly cater to individual investors seeking customised investment solutions designed to achieve their specific financial goals.

  • The investments are made by the fund manager, but they are done through the demat account of the investor. Hence, it is the investor who is given direct ownership of the securities. The income/gain generated by a PMS is on an individual basis, unlike mutual funds.

  • The target audience that PMSs cater to is very specific and streamlined, as they only look at High net worth individuals. The minimum ticket size to invest in a PMS is 50 lakh.

  • Portfolio Management Services (PMSs) have an average portfolio size of only 10-30 stocks which are chosen according to the investment style and goals of individual investors. The Assets Under Management (AUM) is usually 5-7 crores and the CAGR is 15-20%.

  • There are various types of PMSs like active, passive, discretionary and non- discretionary.

PMS funds have the potential to earn more money because they can invest in a wider range of securities as compared to mutual funds. However, they also come with a higher risk. Mutual funds, on the other hand, spread investments across different types of areas to lower risk. Both mutual funds and PMSs have their own pros and cons, as they look at different investor groups. Understanding these differences and knowing your investment style and end goal is helpful when choosing a fund to invest in.

Blog By: Gauri Keche, Assisted By: Megh Jadhav