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and aren't sure whether to park it in a mutual fund (MF) scheme or a portfolio management service (PMS) product? The concept behind a PMS product is the same as a mutual fund - collecting money from investors, pooling it and investing in funds. However, the target investors are different. While MFs look at collecting small sums from many people, a PMS collects large sums from a smaller number of people.

Unlike MFs, where money is pooled depending on the scheme's objective, aPMS product is managed by taking the risk profile of individuals into account, giving room for faster midcourse correction of investment plans.

"Mutual funds are specific products, working in accordance with the objective of the scheme. An equity fund will invest only in the shares of companies. A PMS product is made to suit the needs, that is, the risk appetite, goals, etc, of an individual investor. Or, it is customised. Here, they can shift the proportion of equity and debt to suit the needs of the investor, unlike in a mutual fund scheme, where the fund's constituents depend on the fund manager, within the defined objectives of the scheme," explains Hemant Kale, director, Maia Financial Services.

Generally, portfolio managers offer three-five schemes for investor categories, with varying risk profiles. After accessing the risk appetite, returns, investment objective and time horizon, the portfolio manager creates a tailormade portfolio. MFs are standardised and not customised for an investor. The investor selects schemes according to how he/she perceives his risk-profile and future requirement.

While PMS products target high networth individuals, MFs target retail investors. According to the Securities Exchange Board of India (Sebi), one has to invest a minimum of Rs.5lakh in a PMS scheme. The minimum limit depends on the PMS firm. However, there is no limit for investments in a mutual fund.

When it comes to taxation, mutual funds have the upper hand. Unlike these, where you are not taxed if you redeem your units within a year, PMS products attract short-term capital gains tax, says the chief investment officer of a major fund house.

"Since a mutual fund is a pool created by the fund house, it does not attract short-term capital gains tax. A PMS product, on the other hand, is created in the name of the individual and, so, the income one makes is taxed." Each PMS transaction is considered an independent trade and capital gains tax is applied depending on whether the relevant stock was held for the long term or short term.

PMS products come with their own set of charges. "Most PMS providers offer a choice between a fixed-fee structure (flat fee on portfolio value) and a composite profit-sharing one(lower flat fee plus share of returns generated). They charge an annual fee between 12.5 per cent and a profit sharing fee depending upon the option selected. The latter is charged for the returns generated in excess of a pre-determined hurdle rate," says Richa Karpe, director (investments), Altamount Capital.

When it comes to returns, there is no published data on the performance of PMS products. Mutual funds, on the other hand, publish daily net asset value, monthly performance data, etc. These are not only available with Sebi and the Association of mutual funds, but with various other sources, too. The performance of a PMS product is available with the fund manager. Investors can expect daily or weekly newsletters, research reports and updates from the portfolio manager. These help them gauge the market movement. Many managers provide daily portfolio update through e-mail. They also provide monthly and quarterly updates.

Mutual funds are meant for investors who cannot spare large sums to invest and who don't have the inclination or time to research the market. These investors, depending on their risk-profile, take exposure to debt or equity schemes offered by MFs. Karpe says investors looking at investing in PMS products should do so only if the product is offering something a MF product is not.

PMS is specifically meant for investors having a large surplus. For steady investments, mutual funds work the best.

While MFs look at collecting small sums from many people, a PMS product collects large sums from a smaller number of people.

HOW ARE THEY DIFFERENT?

Mutual Funds

* Pool of small sums of money from alarge group of investors

* Investment based on the fund manager's discretion

* Performance data is publically available

* Minimum investment amount can be as low as Rs.500, which one can invest in an SIP

Portfolio Management Service

* Collects large sums of money from a smaller group of investors

* Portfolio is made according to the individual's risk appetite

* Performance data is given by the fund manager to the individual investor

* Minimum investment amount is Rs.5 lakh

Source : BS