PMS vs. AIFs: Know the Key Differences
The investment industry is now home to strategies that cover securities beyond mutual funds. Realizing the potential of these investment vehicles, HNIs and foreign nationals are actively looking to invest in them. Two of the most sought-after options today are Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS). While both services share certain similarities, it is the differences that give us a better glimpse into their nuances.
In this blog, we will address the dilemma of Alternative Investment Funds vs. Portfolio Management Services by understanding some of the key differences between AIFs and PMS.
Primary Differences Between AIFs & PMS
Before we dive into the differences, let us better understand the meaning of PMS and AIFs, along with their types.
An Alternative Investment Fund (AIF) is a type of collective investment scheme that pools funds from various investors to invest in asset classes other than traditional stocks, bonds, and cash. AIFs focus on alternative investments, which can include private equity, hedge funds, real estate, venture capital, infrastructure, commodities, distressed assets, and such. They offer the potential for higher returns and can be suitable for investors seeking to diversify their portfolios.
AIFs are managed by professional fund managers or investment firms with expertise in specific alternative asset classes. They are categorized into three key types. Category I AIFs include Venture Capital Funds, Social Venture Funds, Infrastructure Funds, and Angel Funds focused on priority sectors. Category II AIFs include Private Equity Funds, Debt Funds, Funds of Funds, and Category III AIFs primarily comprise Hedge Funds, PIPES Funds, etc.
PMS is a personalized investment service offered by financial institutions or professional portfolio managers to investors ready to take a certain degree of risk on their portfolio with enhanced exposure to familiar asset classes, including equity and debt. There are three types of Portfolio Management Services (PMS). With Discretionary Portfolio Management Services, all control over the portfolio management decisions is handed to the portfolio managers. It is up to them to build tailored strategies.
Non-Discretionary Portfolio Management Services require fund managers to provide investment ideas and the investors take the final call. Fund Portfolio managers cannot execute any actions without the investor’s approval.
Advisory services are where portfolio managers only provide expert advice to the investors, it is the investors who execute strategies based on the advice.
The finer differences between AIFs and PMS are associated with regulation, investor eligibility, investment strategies, minimum investment requirements, risk profiles, and the level of customization they offer, to name a few. Let us delve deeper into the factors that serve as key differentiators between the two:
Portfolio Management Services (PMS) | Alternative Investment Funds (AIF) |
One of the key features of PMS is that the services are exceptionally tailored in a way that best caters to the investor's goals. Portfolio managers devise strategies based on other specific factors as well; for example, the investor's risk profile, investment objectives, and preferences. | The most impressive feature of AIFs is that they provide enhanced flexibility to fund managers in terms of investment strategies, asset allocation, and investment horizon. Fund managers have the liberty to optimize the investor's portfolio to sail through market fluctuations. |
PMS is offered by expert portfolio managers or management services firms to high-net-worth individuals (HNIs) as well as retail investors. | AIFs primarily serve high-net-worth individuals (HNIs), institutional investors, and other accredited investors. |
The funds are not pooled. | In the case of AIFs, the pooling of funds is of key importance. |
With PMS, INR 50 lakhs is the minimum SEBI-mandated amount. | With AIFs, the SEBI-mandated minimum investment amount is INR 1 crore. |
There are no limitations when it comes to the number of investors. | The number of investors involved in any AIF scheme cannot be more than 1000 (except Angel Funds). |
Capital Gains and other incomes accumulated in PMS are taxed in the hands of the investor as per their applicable tax rate. | Category III AIFs are not granted pass-through status and hence, income earned by such a fund is subject to taxation at the fund level itself. |
There is no fixed tenure for securities when investing through PMS. | Category-I and II AIFs are usually closed-ended, while Category-III AIFs can be open or closed-ended. In the case of closed-ended funds, the minimum tenure is 3 years. |
Alchemy Capital Management - Portfolio Management Services in India
If you are an investor looking to leverage the potential of AIFs and PMS, then Alchemy Capital Management is the ideal place to start.
Alchemy Capital Management, established in 1999, is one of the leading providers of bespoke Portfolio Management Services in India. The SEBI-Registered firm caters to high-net-worth individuals, family offices and institutions. Managing and advising an AUM worth over USD 978 million, the firm serves a client base of ~1600 families as of September 30, 2023.
Pioneers in the bottom-up stock picking approach, Alchemy places a strong emphasis on thorough research and long-term investments. Guided by a disciplined investment approach, the company aims to deliver sustainable returns. With a legacy of over 20 years, Alchemy has built a reputation for trust, integrity, and expertise. Its stable and experienced team of investment professionals possesses deep industry knowledge, enabling the firm to adeptly navigate market cycles and trends.
To start your investment journey, feel free to get in touch with us at contactus@alchemycapital.com
This blog is for informational purposes only and should not be considered as an offer or solicitation to buy or sell any securities or make any investments. We recommend that readers seek independent advice before making any investment decisions. Please refer to our Disclaimer and Disclosures for more details.
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