Understanding PMS And AIF A Guide For HNI Investors
Portfolio management services and alternative investment funds offer personalised strategies for wealthy investors, but they come with higher costs and higher risk.
What is portfolio management service
A Portfolio Management Service (PMS) manages a portfolio of securities on behalf of an investor. Unlike a mutual fund, the holdings are maintained in the investor own demat account, which gives complete transparency and the ability to customise the strategy to a specific objective.
What is an alternative investment fund
An Alternative Investment Fund (AIF) pools money from sophisticated investors and deploys it into strategies that sit outside traditional equity and debt, such as private equity, venture capital, real estate and long short strategies. SEBI classifies these funds into three categories depending on the strategy used.
Key differences at a glance
- Minimum investment - PMS typically requires a much larger ticket size while AIFs carry a high minimum commitment as well.
- Portfolio ownership - PMS holdings are held in your name, AIF holdings are held by the fund.
- Cost structure - PMS usually has fixed and variable fees, AIFs charge a management fee and often a performance share.
- Liquidity - Both products have longer horizons and lower liquidity than a regular mutual fund.
Should you consider them
These products are meant for investors who have a substantial corpus, a long time horizon and a clear understanding of the risks involved. Compare the net of fee returns with a low cost index or mutual fund alternative before committing, and always read the offer document carefully.
