PMS vs Mutual Funds vs AIF in India (2025): Minimums, Fees, Taxes & Who Should Choose What

Many investors hear “Mutual Fund, PMS, AIF” and feel lost. This guide explains the basics, minimum amounts, fees, taxes, liquidity, and who each option suits. By the end, you’ll know which bucket to explore first.

Education only. This is not investment, legal, or tax advice.

Quick definitions:

Mutual Fund (MF)

A pooled product for retail investors. You can start small, even with a SIP. A fund manager invests for many investors together.

PMS (Portfolio Management Services)

Your money buys shares and other securities that sit in your own demat or account, managed by a professional. The minimum ticket is high.

AIF (Alternative Investment Fund)

A pooled product for larger investors using specialised strategies such as private equity, credit, or long–short. The fund document (PPM) lists fees, risks, and rules.

Minimum investment (ticket size)

The minimums are very different. Mutual funds let you start small. PMS and AIF are built for larger cheques. Read the idea first, then confirm numbers in the table.

Note: Some accredited or special cases may follow different thresholds. Always check the fund’s latest PPM and SEBI circulars.

Fees and charges - what you actually pay

Fees change your net returns. Compare what is charged and how it is shown to you.

Mutual Funds

You pay an all-in fee called the Total Expense Ratio (TER) inside the fund. It is already reflected in the NAV, so you do not see a separate bill.

PMS

Common items are a yearly management fee, a performance fee (over a hurdle, often with a high-water mark), brokerage, custody, audit, and GST on fees.

Tip: Ask for a one-page fee illustration showing your capital, the hurdle, when performance fees start, and every other cost.

AIF

Fees include a management fee and a performance fee (carry) as per a distribution waterfall shown in the PPM. All fees and expenses must be disclosed in the PPM. Read this section line-by-line.

Taxes (for sales on or after July 23, 2024)

India simplified capital-gains slabs in July 2024. Rates differ for short-term and long-term gains. The date of sale matters.

What to remember: Sales before July 23, 2024 follow old rates; sales on or after that date follow the new 20% / 12.5% rule (with the higher ₹1.25 lakh LTCG exemption for eligible equity).

Liquidity, transparency, and control

Mutual Fund

High liquidity in open-ended schemes. Daily NAV and factsheets make tracking simple.

PMS

High transparency. Holdings sit in your demat and cash account, managed on your behalf. Exits are normal market trades; product lock-ins are uncommon (check your agreement for exit loads, if any).

AIF

Often close-ended with a fixed tenure or lock-ins. Statements are periodic. Treat it like a long-term commitment.

Side-by-side snapshot

Who should choose what

• Want small, simple, liquid? Start with Mutual Funds.
• Have ₹50 lakh+ and want customisation with equity-like tax treatment? Consider PMS.
• Have ₹1 crore+, want specialised strategies, and accept lock-ins? Explore AIF.

Worked example (simple numbers)

Assume ₹50 lakh invested for one year in an equity strategy. These are sample numbers to show the flow. Your fee letter and tax profile decide actual results.

Mutual Fund (Direct plan, equity)

• Gross return: +15% → ₹57.5 lakh
• TER already adjusted in NAV (for example, ~1% all-in inside the fund)
• Tax on sale after 1 year: 12.5% LTCG over ₹1.25 lakh exemption (when conditions are met)

PMS (Equity, with performance fee)

• Gross return: +15% → ₹57.5 lakh
• Fees: 2% management (yearly) + 20% performance over a 10% hurdle (illustrative)
• Other costs: brokerage, custody, audit, GST on fees
• Tax: Like listed equity in your hands (when conditions are met)

AIF (Category III example)

• Gross return: +15%
• Fees: management + carry as per the PPM waterfall
• Tax: Typically at fund level; investor receives post-tax distributions

Note: For PMS and AIF, always review a tabular fee illustration and the latest tax memo before investing.

Red flags and due-diligence

• Fees: Understand the hurdle, high-water mark, and how “performance” is defined.
• Documents: Read the PMS agreement or AIF PPM. Look for side-letters, LVF terms, and key-person risk.
• Reporting: Confirm demat/custody set-up and reporting timelines (PMS) or NAV/valuation frequency (AIF).

FAQs

Is PMS better than Mutual Funds?

There is no single winner. PMS suits larger portfolios that want customisation and direct ownership. Mutual funds suit smaller, simpler, and more liquid needs. For a more detailed one-on-one comparison, read our blog on Mutual Fund vs PMS

Can I start PMS below ₹50 lakh?

Usually no. ₹50 lakh is the current regulatory minimum.

What is the minimum for AIF?

Typically ₹1 crore. Some special cases exist as defined in the PPM or latest rules. Always check the latest document.

How are PMS gains taxed after July 23, 2024?

Like listed equity when conditions are met: STCG 20%, LTCG 12.5%, with a ₹1.25 lakh annual exemption for eligible equity gains.

Are Category III AIFs pass-through?

Generally no. Category III AIFs are typically taxed at the fund level. Investors receive post-tax distributions.

Related reading on Finnovate

• Wealth Creation in India: Meaning, Strategies, Examples & How to Start
• Wealth Management vs Asset Management: What’s the Difference and Which Do You Need?
• DIY vs. Professional Wealth Management: Which is Right for You?
• 5 Types of Wealth Management in India

Disclaimer: This article is for education only. It is not investment, legal, or tax advice. Tax treatments depend on your facts and can change with law. Please consult a SEBI-registered professional.