Mutual Funds vs PMS: Why Experts Advise Against PMS for Rs 1.2 Cr Portfolios
By Market Desk
Financial experts recommend low-cost mutual funds over Portfolio Management Services (PMS) for large portfolios like Rs 1.2 crore, citing tax inefficiencies and lack of true customization.
If you’ve built up a substantial portfolio, say around Rs 1.2 crore, you might be wondering if a Portfolio Management Service (PMS) is the next step for you. Financial experts Dhirendra Kumar and Ashutosh Gupta, however, strongly advise against it, recommending low-cost mutual funds as a much better option.
They point out several key reasons why PMS might not be the best choice for managing your hard-earned money.
Understanding the PMS Disadvantages
One major drawback with a PMS is its tax inefficiency. Any profits your portfolio manager makes are immediately taxable for you, whether they’re short-term or long-term gains. This annual tax bill can eat into your net returns significantly.
Think about it: with mutual funds, the fund’s internal trading doesn’t trigger personal tax events for you directly. You only pay tax when you redeem your units, offering a clear advantage.
Another common misconception is that PMS offers truly customized treatment. In reality, most portfolio managers use a few model strategies rather than crafting a unique plan just for you. A quick look at long-term returns on the Association of Portfolio Managers in India (APMI) website often shows that PMS performance isn’t consistently impressive.
When it comes to transparency, mutual funds clearly win. Their Net Asset Value (NAV) is disclosed daily, so you always know your exact entry and exit points. PMS returns, on the other hand, are often just claims that lack the same level of independent validation and are subject to much looser regulation.
Fund companies also tend to put their best talent and resources into mutual funds. This is because mutual funds operate on a much larger scale, bringing greater economic benefits and often leading to better-managed offerings.
The idea that a PMS is a natural progression for wealthier investors is simply a myth. Experts confirm that a well-chosen, simple, and low-cost mutual fund can deliver comparable, or even superior, long-term outcomes compared to PMS or other alternative investment vehicles.
So, even if you have a portfolio above the Rs 50 lakh minimum investment threshold for PMS, remember that mutual funds remain a highly efficient and advantageous investment vehicle for your financial goals.