Mutual Fund vs Portfolio Management Schemes
There are many differences between Mutual Fund vs Portfolio Management Schemes as listed in the following table which would help you choosing between the two:
MF Vs PMS
Basis of Difference | Mutual Fund (MF) | Portfolio Management Schemes (PMS) | |
---|---|---|---|
Objective | To earn relatively higher returns than benchmark | Vs | To provide a completely tailor made portfolio for each investor to suit his requirements |
Meaning | A trust which pools the savings of several investors together and invest this collected fund in diversified basket of securities at low cost | Vs | A personalised service and customised portfolio solution is offered depending on risk appetite and returns expectation of the investor |
Investment pattern | Invests under risk controlled asset classes and work under rules and guidelines set up by the regulator | Vs | Invests in riskier securities to maximise returns |
Management | Less aggressively managed as compared to the hedge fund | Vs | Very aggressively managed |
Who can invest | Small investors who want to create long term wealth and achieve their short term or long term objectives | Vs | High net worth individuals (HNIs) |
Fee structure | Based on the percentage of assets managed - a fixed fee structure | Vs | Offers more than one option for the fee structure, popular structure is a low fixed fees plus performance incentive |
Strategy | Will invest in diversified portfolio having 40-50 stocks from many sectors | Vs | 10-20 stocks strategies or other financial instruments at a given time |
Transparency | Portfolio and performance are disclosed in monthly fact-sheet of final holdings by the fund house, available to all | Vs | Investor knows every purchase and sale of shares done for him including their prices, brokerage, other charges, etc., available to investor only |
Risk | Less risky due to diversification | Vs | More risky due to concentration |
Minimum investment | Can be as low as Rs. 500 | Vs | Rs. 25 lakh |
Documentation | Application form | Vs | PMS investor and the portfolio manager enter into a separate agreement |
Investment in derivates | Can invest in derivatives (F&O) markets for the purpose of hedging positions only | Vs | Can invest in derivates (F&O) markets to make trading gains other than hedging |
Performance | Past performance of fund is available | Vs | Can not guage the performance of a PMS product before one invests in it |
Participation of investor in selection of securities | Can not participate | Vs | PMS fund manager explains logic behind stock selection, shares research report and properly answers all the queries raised by the investor |
Regulator | Securities and Exchange Board of India (SEBI) is the regulator | Vs | Un-regulated |
Tax efficiency | Tax efficient - Long term capital gains (LTCG), tax exemption, etc. options available | Vs | Tax inefficient as whenever PMS fund manager buys and sells, the client has to pay short-term or long-term capital gains as the stocks are transacted in investor's account directly |