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Tata Capital > Blog > Wealth Services > Let’s Understand the Difference between PMS and AIF
Wealth Services
Let’s Understand the Difference between
PMS and AIF
By Tata Capital 29 June 2021 4 mins read 2830
Are you looking to grow your money by investing in securities beyond mutual funds?
Well, look no further than Alternative Investment Funds (AIFs) and Portfolio
Management Services (PMS). These high-risk instruments have recently gained
immense popularity among sophisticated investors for wealth creation.
Let’s understand PMS and AIF in detail and the differences between them.
What are Portfolio Management Services?
PMS is a tailored investment portfolio in fixed income instruments, individual
securities, equity, and structured products. It caters to the investment objectives of
high-net-worth individuals with a minimum ticket size of Rs. 50 lakhs.
PMS offers professional management of your investments and can be discretionary or
non-discretionary. In discretionary, the fund or PMS managers manage your portfolio
by tracking the market and keeping your investment requirements in mind. Contrarily,
in non-discretionary, investors can make the final decisions.
In PMS, you actively monitor your personalised portfolio to track developments and
maximise returns. Since experienced portfolio managers handle your investments, all
you need to do is review the transactions periodically and get performance updates.
Besides, fund managers receive flexibility in selecting stocks, sectoral allocation, and
maintaining cash position.
Here, your portfolio is usually concentrated and your stocks are more likely to generate
alpha returns in the long run.
Additional Read: Why should an investor do a periodic portfolio review?
What are Alternative Investment Funds?
AIFs are pooled investments for investing in hedge funds, venture capital, futures, and
private equity. Based on their investment strategies, AIFs, are classified into three
categories.
Category I
These funds are invested in small businesses, start-ups, social ventures, early-stage
ventures, angel funds, etc., with superior growth potential.
Category II
This category includes investments in Private Equity (PE) funds, fund of funds, and debt
instruments.
Category III
This AIF aims at generating short-term returns by employing diverse and complex
trading strategies. Category-III funds can include hedge funds and Private Investment
in Public Equity (PIPE) Funds.
Additional Read: What Are AIFs and Why Are They Increasingly Becoming Popular with
Investors?
PMV vs AIF: Which one is better?
AIF PMS
1. Pooling of Pooling of funds is the Funds are not pooled, and
funds essence of this kind of investors have separate Demat
investment model. accounts.
5. Number of The maximum number of There is no cap specified on the
Investors investors to any AIF scheme number of investors
cannot exceed 1,000
[Link]- Rs. 1 crore Rs. 50 lakhs
mandated
minimum
investment
amount
4. Minimum A minimum corpus of Rs. 20 No corpus amount requirements
corpus crore is required. For
Category-I angel funds, Rs.
10 crore is necessary.
6. Lock-in In close-ended AIF, investors PMS investors can withdraw their
period must adhere to the lock-in funds at any time.
period.
2. Types AIFs are grouped into three PMS are of two types; discretionary
– Category I, II, and III, and non-discretionary based on
depending on where the the authority of the fund
funds are invested. manager.
7. Tenure Category-I and II AIFs have a No fixed tenure for securities.
minimum tenure of 3 years
and a maximum of 5 years.
The minimum term is
extended when two-thirds
of investors by value
approve it. Category-III
funds have no minimum
tenure.
8. Taxation Two factors impact the Equity PMS – Short term capital
taxation of an AIF: gains (before 1 yr) will be taxed at
Classification of the fund 15% and any long term capital
into one of the 3 categories gains will be taxed at 10% (after 1
andLegal form of the fund. lakh limit per financial year)
SEBI regulations permit an without indexation benefits. Debt
AIF to be set up in the form PMS – For listed securities, you
of a trust, or a company, or have the benefit of long-term
a limited liability partnership capital gains taxation, after 1 year,
or a body corporate. 1 day as compared to three years
in debt mutual funds
To Conclude
While AIF gives the investor an avenue to pool in funds with the flexibility to invest in
derivatives, listed & unlisted equity shares, real estate, hedge Fund, etc.; PMS permits
the investor to actively monitor its personalised portfolio to track developments and
maximise returns. Since both AIFs and PMS are high-risk, high-reward instruments, it is
crucial to have an excellent management team.
If you wish to invest in PMS or AIFs, get exceptional financial guidance and leverage
wealth management solutions from – Tata Capital Wealth. Nurture your wealth and
become a sophisticated investor with us. Get in touch today!
Build Your Wealth with Expert Guidance from Tata Capital!
Apply now
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