Mutual Funds Not Cutting It? Here’s When To Switch To PMS

By Ram Medury

With India offering so many investment avenues, one size no longer fits all. While mutual funds (MFs) have democratised investing for the masses, high-net-worth individuals (HNIs) are increasingly seeking more, more personalisation, more transparency, and more control. That’s where Portfolio Management Services (PMS) steps in.

The question isn’t whether PMS is better than mutual funds. It’s about when PMS makes more sense. If your portfolio has crossed a threshold Rs 50 lakhs and beyond, and you’re looking for more nuanced portfolio handling, active decisions, collaborative decisions, access to hedging/protection, or access to niche opportunities, PMS could be the natural upgrade.

The Investment Approach

There are three broad approaches to investing:

• DIY (Do-It-Yourself):  The investor handles research, stock selection, rebalancing, and tax tracking. Full control, but high effort and risk.
• Advisory Model: An advisor suggests ideas; you choose to act or not. This gives some support, but you’re still in the driver’s seat.
• PMS (Portfolio Management Services): The portfolio manager handles everything: research, execution, rebalancing, risk management, and tax optimisation. You watch from the co-driver’s seat, with full visibility and zero day-to-day responsibility. If you wish to be more actively involved PMS has a model for that too (Non-Discretionary)

For HNIs who’ve earned their wealth through business or profession and don’t have the time (or inclination) to actively manage it, PMS offers a seamless, high-touch experience. It’s like hiring a personal trainer instead of watching YouTube workouts.

How PMS Differs from Mutual Funds: A Quick View

Feature	PMS	Mutual Funds
Minimum Investment	Rs 50 lakhs+	Rs 500–Rs 5,000
Portfolio Ownership	Direct, individual stocks	Units in the pooled fund
Customisation	High–tailored to investor goals	Low – same for all investors
Fee Model	Performance-linked	Fixed expense ratio
Transparency & Reporting	Detailed, investor-specific	Standardised and pooled
Tax Management	Personalised strategies	Uniform across all investors
Taxation for US-based NRIs	Friendlier, as stocks are held in the investor's account	Taxed annually on an accrual basis; ie even gains not redeemed are taxable
Investment Flexibility for US-based NRIs	Fully flexible	Many MFs have restrictions
Access to Niche Opportunities	Yes (pre-IPOs, thematic bets)	Rare
Risk Management	Proactive and customised	Broad and generic

Why HNIs Are Shifting to PMS

Mutual funds are fantastic for SIPs and diversified entry-level investing. But once an investor’s portfolio touches Rs 50 lakhs or more, they need solutions that reflect their unique financial story. PMS allows you to have that: thematic preferences, sectoral exclusions, liquidity plans, NRI-related customisations, and even estate transition strategies. There are many more reasons; we will cover three of them.

1. Desire for Customisation and Control

Let’s say you want to invest in Indian tech startups, avoid public sector banks, and maintain a cap on ESG scores. A PMS manager can craft your portfolio accordingly. Mutual funds can’t. Even advisory models fall short in execution unless you’re hands-on.

2. Tax-Efficient Investing

PMS allows capital gains harvesting, holding period optimisation, and inter-asset tax planning—all of which get overlooked in pooled funds. This is especially useful for business owners or senior professionals with complex tax obligations.

3. Transparent, Real-Time Reporting

In mutual funds, you get periodic fact sheets and fund-level NAV updates. In PMS, you get stock-by-stock, trade-by-trade reports with cost basis, realised/unrealised gains, sectoral splits, and rebalancing rationale. It’s like switching from summary headlines to a personalised investment journal.

Going Beyond the Basics: What PMS Really Offers

PMS managers track beta, volatility, liquidity risks, and sector correlations in real-time. If midcaps are overheating or global cues signal defensive plays, your portfolio can be rebalanced proactively. Mutual funds react more slowly, often after redemptions begin.

Some PMS strategies include pre-IPO placements (in non-discretionary mode), structured products, or under-researched sectors that mutual funds can't enter due to size or regulatory restrictions. This first-mover advantage can be a real alpha driver.

From onboarding to performance review, PMS provides a concierge-like experience. Portfolio managers communicate directly, not through call centres or distributors. For many HNIs, this comfort and clarity are quite valuable.

How PMS Handles the Core Investment Mechanics

When managing wealth beyond a certain threshold, execution matters as much as strategy. PMS stands out by automating rebalancing, streamlining tax handling, and planning exits aligned to your life goals. Here’s how PMS handles the nuts and bolts of investing, far more efficiently than DIY or advisory approaches.

 

Rebalancing

 

• DIY MF: Manual and often delayed
• PMS: Automated, timely, and rule-based
  

 

Tax Filing and Custody

 

• DIY MF: You handle taxes, custodianship
• PMS: The portfolio manager consolidates tax reports, handles execution, and uses professional custodians
  

 

Exit Planning

 

PMS providers plan exits aligned with both market cycles and investor milestones, like funding a child’s education or shifting to a retirement income stream. Mutual funds don't have that individual alignment.

A Case Study That Makes It Clear

Ms. Iyer, a 50-year-old retired corporate executive, has Rs 3 crores to invest. She wants:

• Minimal involvement
  
• No exposure to tobacco, gambling, or alcohol stocks
  
• Moderate risk with focus on India’s capex cycle
  
• Quarterly income from dividends or strategic sell-downs
  
• Detailed portfolio reports she can share with her family accountant
  

No mutual fund, and no advisory model, could tick all those boxes. A Discretionary PMS did.

Mutual Funds Still Have Their Place

Let’s not discount mutual funds. For systematic, low-cost investing, they’re unbeatable. Especially for first-time investors or those with under Rs 25–Rs 30 lakhs in financial assets. They offer:

• High liquidity
  
• Low expense ratios
  
• Regulatory oversight
  
• Easy accessibility via digital platforms
  

But they’re built for the average investor. If you’ve outgrown the average bracket, your portfolio deserves an above-average manager.

What about SIFs from Mutual funds

While mutual funds are evolving with Separately Invested Funds (SIFs), PMS still has the upper hand. SIFs offer more flexibility than regular funds but remain limited by pooled structures and uniform tax treatment. PMS delivers truly bespoke portfolios, tax optimisation, exclusive access, and real-time management, ideal for HNIs with complex needs.

How to Decide if You’re Ready for PMS

Ask yourself:

• Is my portfolio over Rs 50 lakhs and growing steadily?
  
• Do I want investment strategies built around my goals?
  
• Am I comfortable with a slightly higher fee for greater performance accountability?
  
• Do I want access to niche ideas, faster rebalancing, and tax alpha?
  
• Do I value visibility and data over just NAV updates?
  

If you’re answering yes to most, PMS may be the next logical step in your wealth journey.

PMS is not about beating mutual funds but creating space for a more sophisticated allocation in your portfolio. Think of it this way: if mutual funds are like trains, efficient, mass-market, scheduled, then PMS is like a chauffeured car, adapting to your destination, route, and pace.

(The author is the Founder & CEO of Maxiom Wealth)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd.

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