HNI investors are willing to take additional risks and look for specialised strategies to generate superior returns versus diversified mutual funds in their portfolio.
Even as Mutual Fund (MF) investments are a great avenue for retail participation in equity and fixed income markets, High Net-worth Individual (HNI) investors are willing to take additional risks and look for specialised strategies to generate superior returns versus diversified mutual funds in their portfolio.
“Managers on the Portfolio Management Services (PMS) platform often create concentrated portfolios and sometimes customised portfolios (in case of NDPMS) of listed securities for investors. While managers on the Alternative Investment Fund (AIF) platform invest in non-traditional strategies like long/short, private equity, venture debt, structured credit etc,” said Nitin Rao CEO InCred Wealth.
Total PMS industry AuM has grown approximately 18 per cent CAGR over the last 10 years from Rs 3.63 lakh crore to Rs 19.22 lakh crore (Data from December 2010 to October 2020). AIFs have also grown from a mere Rs 360 crore of Commitments in Dec 2012 to Rs 4.51 lakh crore as on March 2021 (source SEBI website).
“Both PMS and AIFs have a few similarities such as they both give more concentrated exposure to approximately 25-30 stocks, offer a differentiated strategy for investors, require higher minimum investments, and are both regulated by SEBI,” said Rao.
Differences between PMS and AIF
There are many differences between PMS and AIFs in terms of the role they play in a client’s portfolio, often with no overlap.
According to Rao, the key differences investors need to be aware of are:
Minimum investment amount: The minimum investment required in PMS is Rs 50 lakh while for AIFs it is a minimum of Rs 1 crore.
Pooling of funds: By nature, AIFs are a pooled investment fund while a PMS is a tailor-made portfolio of securities and involves no pooling of investor funds. PMS investors directly own the portfolio stocks in their demat account.
Lock-in period: With regards to the lock-in period in PMS, the investor can withdraw at their own discretion as specified in the agreement. On the other hand, AIFs are often close-ended units with a prescribed lock-in period, where the investors have to wait for the strategy to play out.