• Home
  • Blogs
  • PMS vs. Mutual Funds: A Detailed Comparison for Investors

PMS vs. Mutual Funds: A Detailed Comparison for Investors

When navigating the world of investments, both Mutual Funds and Portfolio Management Services (PMS) stand out as some of the options that offer professional management. However, while they may seem similar on the surface, they are fundamentally different in their structure, operation, and the type of investor they are designed for. A deeper understanding is crucial to determine which is the right fit for your financial journey.

What are Mutual Funds? 

A mutual fund is a financial instrument that pools money from many investors to invest in a diversified portfolio of securities like shares, bonds, and other assets. These are managed by professionals known as fund managers, who make investment decisions on behalf of all the investors in the scheme depending on the fund's objective.

  • How it Works:
    When you invest, you are allotted units that represent your share of the portfolio's value (NAV). You don't own the underlying securities directly.
  • Key Features:
    • Accessibility: Designed for retail investors, they allow starting with small amounts through Systematic Investment Plans (SIPs) or lumpsum.
    • Diversification: They offer diversification by investing across many securities, which can help manage risk.
    • Regulation: Tightly regulated by the Securities and Exchange Board of India (SEBI) to protect investor interests, ensuring transparency and fairness.

What is Portfolio Management Services (PMS)?

Portfolio Management Services (PMS) is a professional service where skilled portfolio managers and research teams manage an individual investor’s portfolio. It is tailored for High Net-Worth Individuals (HNIs), with a minimum investment mandated by SEBI at ₹50 lakhs.

How it Works:
A demat account is opened in the investor's name, and the securities (stocks, bonds, etc.) are held directly by the investor. PMS portfolios are customized and can include a mix of assets like stocks, bonds, mutual funds, debt instruments, and other securities to align with the client's specific financial goals, risk tolerance, and investment horizon. The portfolio manager has the authority to operate this account based on a signed agreement.

  • Key Features:
    • Customization: The portfolio can be tailored to an investor's specific risk appetite, return expectations, and investment philosophy.
    • Concentration: Unlike mutual funds PMS can lead to higher risk but also potentially higher returns.

Different Types of PMS Services

Feature

Discretionary PMS

Non-Discretionary PMS

Decision-Making

The portfolio manager has complete authority to make investment decisions on behalf of the client.

The portfolio manager provides investment recommendations, but the final decision rests with the investor.

Investor Involvement

Minimal; ideal for a hands-off approach.

High; requires active participation from the investor.

Execution of Trades

The portfolio manager executes trades as and when they deem fit.

Trades are executed only after receiving explicit approval from the investor for each transaction.

Suitability

Best for investors who lack the time or expertise to manage their portfolio actively and trust the manager's judgment.

Suitable for investors who have a good understanding of the market and wish to retain control over their investments.

PMS vs. Mutual Funds: The In-Depth Breakdown

Feature

Mutual Funds

Portfolio Management Services (PMS)

Minimum Investment

Low; can start with as little as ₹100-₹500.

High; SEBI-mandated minimum of ₹50 lakhs.

Ownership Structure

Investors own units of the scheme, not the underlying securities.

PMS portfolios are customized and can include a mix of assets like stocks, bonds, mutual funds, debt instruments, and other securities to align with the client's specific financial goals, risk tolerance, and investment horizon.

Portfolio Customization

Standardized portfolio for all investors in a scheme. No personalization.

Highly customized portfolio tailored to individual investor risk appetites and goals.

Fee Structure

A single, standardized fee called the Total Expense Ratio (TER), which includes management, administrative, and other costs. Exit loads may apply on early redemption.

A more complex fee structure, which can include a setup fee, a fixed management fee, and often a performance-based fee (profit sharing) and exit load may apply on early redemption.

Transparency

High transparency through mandatory disclosure of NAV, factsheets, and full portfolios periodically.

Highly transparent as it will be handled by the portfolio manager on your behalf.

Liquidity

Generally high, with ease of redemption (though exit loads may apply).

Can be lower than mutual funds due to personalized portfolios and the nature of direct holdings; subject to agreement terms.

Investment Horizon

Suitable for various horizons, from short-term (with appropriate fund types) to long-term wealth creation.

Typically suited for a medium to long-term investment horizon, allowing managers to implement strategies effectively.

Who Should Choose What - PMS vs Mutual Funds?

You might choose a Mutual Fund if:

  • You are looking to start with a small to moderate amount.
  • You prefer a well-diversified, hands-off investment approach.
  • You value simplicity in fee structures (TER) and standardized products.

You might choose a PMS if:

  • You are a High Net-Worth Individual with an investment corpus of ₹50 lakhs and above
  • You are a sophisticated investor who requires a fully customized portfolio for your investment goals and risk profile 
  • You are comfortable with higher-risk, concentrated portfolios for potentially higher returns
  • You want a more personalized service relationship with your manager

Conclusion

The choice between PMS and mutual funds isn't about which is definitively "better," but which is more "suitable". Mutual funds are a democratic tool for wealth creation for the vast majority of investors. PMS offers a bespoke, high-end service for affluent investors seeking a level of customization and control that mutual funds may not provide. Your financial status, investment knowledge, and personal goals should be the ultimate guide in making this important decision.

Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Published on Oct 6th, 2025

Read more