PMS vs Mutual Funds: What’s the Difference & Which One Should You Choose?

If you're looking to invest in the stock market but don't have the time or expertise to pick individual stocks, two popular options come to mind: Portfolio Management Services (PMS) and Mutual Funds. Both are managed by professionals and aim to grow your money, but they work very differently.

Let’s break it down and help you figure out which one suits you better.

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What is PMS (Portfolio Management Service)?

PMS is an investment service where a portfolio manager builds and manages a personalised portfolio of stocks, bonds, or other securities for you. The portfolio is created based on your financial goals, risk appetite, and preferences.

Unlike mutual funds, where your money is pooled with others, PMS gives you direct ownership of the stocks or securities in your account. It’s like having a dedicated fund manager working exclusively for your wealth.

As per SEBI rules, the minimum investment required for PMS is ₹50 lakh, which makes it suitable mostly for high-net-worth individuals (HNIs).

There are three types of PMS:

• Discretionary: The fund manager takes all investment decisions.
• Non-discretionary: The investor approves each transaction.
• Advisory: The manager gives recommendations; execution is on the investor.

Related Read: Portfolio Management: Meaning, Types, Objectives & How to Do It Right

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What is a Mutual Fund?

A mutual fund collects money from multiple investors and invests in a diversified portfolio of stocks, bonds, or other assets. The money is managed by a professional fund manager on behalf of all investors.

Here, you don’t directly own the stocks. Instead, you own units of the fund, and the performance of those units depends on the underlying investments.

Mutual funds are regulated, cost-effective, and easily accessible - you can start investing with as little as ₹100 via SIP. There are hundreds of schemes to choose from based on your goal and risk appetite, such as equity, debt, hybrid, index, and more.

Related Read: Mutual Funds for Beginners

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PMS vs Mutual Funds: Key Differences

Feature	PMS	Mutual Funds
Minimum Investment	₹50 lakh	₹100 (SIP) / ₹500 (lump sum)
Ownership	Direct (in your demat account)	Indirect (units of the fund)
Customisation	High	Low
Fees	Fixed + performance-based fees	Expense ratio (0.5%–2.5%)
Taxation	On each transaction (capital gains)	Only on redemption of fund units
Liquidity	Lower	Higher (T+2 redemption)
Transparency	High	Moderate (via factsheets)
Regulation	SEBI-regulated, less standardised	SEBI-regulated, standardised

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Who Should Consider PMS?

PMS is generally meant for investors with a large corpus who want a tailor-made approach to investing. If you have a high risk appetite, want direct stock ownership, and are comfortable with higher fees, PMS might be a good option.

It also suits investors who prefer transparency and want detailed reporting, even direct access to the portfolio manager in some cases. However, it’s important to understand that PMS returns can be volatile and there is no guaranteed performance.

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Who Should Go for Mutual Funds?

Mutual funds are ideal for most retail investors. They’re simple to understand, easy to invest in, and offer diversification even with small amounts of money. You don’t need a demat account, and you can start or stop investing anytime.

If you're looking to invest for long-term goals like retirement, child’s education, or wealth creation, mutual funds provide a disciplined and low-cost way to do it. With SIPs, you can invest regularly without worrying about market timing.

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Are PMS Returns Better Than Mutual Funds?

Many investors believe that PMS gives better returns because it’s actively managed and customised. While this can be true in some cases, it’s not guaranteed. PMS returns vary significantly based on the strategy, market conditions, and fund manager’s skill.

On the other hand, mutual funds—especially actively managed equity funds - have also delivered strong long-term returns. The key difference is that mutual funds are more standardised and have lower fees, which can improve net returns over time.

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Fees and Costs

PMS generally charges both a fixed management fee and a performance fee. The total cost can be significantly higher than mutual funds. For example, some PMS models charge 2% annually plus 20% of profits above a certain hurdle rate.

Mutual funds charge an expense ratio, which is usually between 0.5% and 2.5% depending on the type of fund and whether you choose the direct or regular plan.

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Taxation Differences

With PMS, you’re taxed on each transaction - just like when you buy or sell stocks on your own. This means you might end up paying more in taxes if there’s active churn in your portfolio.

Mutual funds are more tax-efficient. You pay tax only when you redeem your units. Equity mutual funds held for over 1 year are taxed at 10% (LTCG) on gains above ₹1 lakh, and debt mutual funds follow different rules based on the holding period.

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Which One Should You Choose?

If you’re just starting out or looking for a simple way to invest for your future, mutual funds are usually the better choice. They’re accessible, regulated, and ideal for long-term wealth creation.

If you’re an experienced investor with ₹50 lakh or more to deploy and want personalised investment management, PMS can be explored. Just make sure you understand the risks, fees, and performance expectations clearly.

In fact, many HNIs use both - keeping the core portfolio in mutual funds and exploring niche opportunities through PMS.

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Final Thoughts

Both PMS and mutual funds are valid ways to grow your wealth but they cater to different types of investors. The right choice depends on how much capital you’re investing, how involved you want to be, and what kind of risk you’re comfortable taking.

For most investors, mutual funds offer a well-rounded, cost-effective approach to long-term investing. But if you’re looking for customisation and have the budget for it, PMS might be worth exploring with the right manager.

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Frequently Asked Questions

1. Can I invest in both PMS and mutual funds?

Yes, you can. Many investors use mutual funds for core allocation and PMS for focused or aggressive strategies.

2. Is PMS riskier than mutual funds?

PMS tends to be more concentrated and less regulated than mutual funds, so the risk can be higher. Always assess your risk appetite before investing.

3. Are PMS returns guaranteed?

No. Like mutual funds, PMS returns depend on market conditions and the manager’s performance. There’s no guarantee.

4. Do I need a demat account for PMS?

Yes. Since the securities are bought in your name, a demat account is mandatory for PMS.

5. Are mutual funds safer?

Mutual funds are considered safer for retail investors because they’re diversified, regulated, and lower in cost.

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Disclaimer: This article is for informational purposes only. Mutual fund and PMS investments are subject to market risks. Please read all scheme-related documents carefully before investing.