PMS vs AIF: Know the differences before choosing one

By: |
July 27, 2021 10:13 PM

HNI investors are willing to take additional risks and look for specialised strategies to generate superior returns versus diversified mutual funds in their portfolio.

Portfolio Management Services, PMS, Alternative Investment Fund, AIF, PMS vs AIF, Mutual Fund, MF, High Net-worth Individual, HNI, HNI investors, private equity, venture debt, structured creditThere are many differences between PMS and AIFs in terms of the role they play in a client's portfolio, often with no overlap.

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.

What are Alternative Investment Funds? Should HNIs invest in AIF?

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.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Your Money: Know the various debt securities & the risks they carry
2Early Payment: How to use your surplus money optimally
3Krisumi Corporation partners with Savills India to market Krisumi Waterfall Residences in international markets