While both Mutual funds and Portfolio Management Services (PMS) allow investors to invest in stocks and bonds by investing their money in a pooled investment vehicle that is managed by professional fund managers, they both are two different investment options serving different objectives and are meant for two different kinds of investors.
Anyone can invest in a Mutual Fund with as little as INR 500/-p.m. but PMS schemes require a minimum investment amount of INR 25 lakhs since they are primarily wealth management products targeted at HNIs. Mutual Funds are heavily regulated by SEBI while PMS schemes don’t have stringent disclosure norms. Also, PMS products are meant for advanced investors who can understand the risks involved since PMS funds may invest in securities that may not be easily tradable in the market. Mutual Funds invest in securities that are liquid. Mutual Funds are less risky than PMS schemes because of their well-diversified portfolio. PMS funds usually have a concentrated portfolio of 20-30 stocks. Thus, the performance of the fund completely depends on the stock picking ability of the fund manager.
PMS funds have high entry and exit load apart from a high fund management fee. Mutual Funds have no entry load and can have a small exit load. Mutual Funds are suitable for retail investors while PMS funds are not meant for retail investors.