PMS & AIF
Portfolio Management Services
PMS stands for Portfolio Management Services. It refers to a service provided by financial institutions or professional portfolio managers where they manage a portfolio of stocks, bonds, or other securities on behalf of an investor. PMS is typically used by high-net-worth individuals (HNWIs) who want a personalized approach to managing their investments.
Key Features of PMS:
Personalized Investment Strategy: PMS offers a tailored investment strategy based on the individual's financial goals, risk tolerance, and investment horizon. The portfolio manager selects and manages a mix of assets to meet these specific needs.
Active Management: Unlike mutual funds, where the portfolio is managed according to a set strategy, PMS involves active management, where the portfolio manager makes frequent decisions about buying or selling assets to optimize returns.
Ownership of Securities: In PMS, the investor holds the securities in their name. This is different from mutual funds, where the investor owns units of the fund.
Transparency: PMS clients receive regular reports and updates on their portfolio, including details of transactions, performance, and holdings.
Higher Minimum Investment: PMS typically requires a higher minimum investment compared to mutual funds, often starting from a few million units of currency, depending on the country.
Fee Structure: The fees for PMS are generally higher than those for mutual funds. They usually include a fixed management fee and may also involve a performance-based fee.
Types of PMS
Discretionary PMS:The portfolio manager has full discretion to make investment decisions without needing the investor's consent for each transaction.
Non-Discretionary PMS:The portfolio manager advises the investor, who then makes the final decision on each transaction.
Advisory PMS:The portfolio manager provides advice, but the investor makes all the decisions and executes the trades.
PMS is ideal for investors looking for a customized investment approach and are willing to pay for professional management to potentially achieve higher returns.
Alternative Investment Fund
Alternative Investment Funds or AIF in short, are defined as privately pooled investment funds and categorized by The Securities Exchange Board of India (SEBI) as Category I AIF, Category II AIF, and Category III AIF. It is a fund of funds (FOF) that invests in asset classes other than stocks, bonds, Government securities, fixed deposits or cash. It pools money from various HNI investors and invests them under different investment categories as specified by the SEBI for the benefit of investors.
The minimum investment amount to invest in an AIF is Rs 1.00 Crore depending on the type of AIF. Therefore, it can be called as product meant for the HNIs.
Advantages of AIF
AIF offers diversification as a key benefit and has considerable freedom in investment decisions compared to mutual funds.
There are various non-traditional investment options available to AIFs which generally are not available to all investors, particularly retail investors.
AIF offers diversification as a key benefit and has considerable freedom in investment decisions compared to mutual funds.
There are various non-traditional investment options available to AIFs which generally are not available to all investors, particularly retail investors.
How AIF works?
Alternative Investment Funds or AIF raise money to form an investment fund pool that invests in non-traditional assets classes that the ordinary investors may not have access through any other products like Mutual Funds. Money can be pooled from various types of investors, example - Resident Investors, NRIs or non-resident investors or foreign investors.
Who Can Invest in AIF?
AIFs are mainly aimed at high net worth or HNI individuals who are ready to invest minimum Rs 1.00 Crore and take high risk. While the return potential of AIF may be very high, the risk is also very high. Therefore, this is not meant for all investors excepting those who are well versed with these kind of investing.
In summary, if you have a large amount to invest in one instrument
You have the ability to sustain the risk
You are ready to remain invested with long lock-in periods
What are Specialised Investment Funds (SIFs)?
SIFS are a new investment avenue introduced by SEBI that bridge the gap between Mutual Funds (MFs) and Portfolio Management Services (PMS).
Features
- Mutual funds that can get SIF licence: ₹ 10,000 cr AUM and 3-yr track record
- Appoint a CIO with 10+ yrs experience managing ₹5,000 cr AUM
- Minimum investment amount 10 lakh
- Accredited Investors don't need to follow this limit
- Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP) are allowed
- NAV can fall and bring your investment below 10 lakh, but you cannot redeem below 10 lakh
Offer 7 categories of investment strategies
| Equity-Oriented (equity and derivatives) |
1. Equity Long-Short 2. Equity Ex-Top 100 Long-Short 3. Sector Rotation Long-Short |
|---|---|
| Debt-Oriented (fixed-income securities) |
4. Debt Long-Short Fund 5. Sectoral Debt Long-Short Fund |
| Hybrid (equity, debt, REITs, and commodities) MF vs SIF vs PMS |
6. Hybrid Long-Short Fund 7. Active Asset Allocator Long-Short Fund |
MF vs SIF vs PMS
| Category | MF | SIF | PMS |
|---|---|---|---|
| Type of investors | Retail investors | Sophisticated investors and HNIs | HNIs and UHNIS |
| Min. investment | ₹ 100-500 | ₹ 10,00,000 | ₹ 50,00,000 |
| Portfolio flexibility | Fund managers must follow defined mandates and regulatory limits | Higher flexibility | Higher flexibility |
| Schemes | Open-ended and Close-ended | Open-ended, Close-ended, or Interval-based (other than daily subscription/redemption) | Subscription based on the client agreement |
| Redemptions | Open-ended - can be redeemed any time Close-ended - no redemption until maturity |
Redemption could be daily. weekly, fortnightly, monthly, quarterly, annually, fixed maturity, etc. | Redemption depends on the strategy; some PMS schemes may have a lock-in period |
| Tax | Capital Gains tax only at the time of redemption | No clarity yet | Capital Gains tax on sale of securities. Dividends/ income distributed is combined with regular income |