When the markets succumbing to bear and the fall is more than 35%, does the high cost product like PMS produces better returns to investors? Or the simple Mutual Fund is good enough even for savvy investors?
There are 200 Plus PMS available in the market and more than 1,10 000 cr of Assets under Management are already invested.
Generally Mutual Funds are applicable to ordinary and general investors while the PMS caters to wealthy and Ultra HNI segment. ( The Minimum ticket size of PMS is 50 Lakhs )
Cost comparison of MF Vs PMS
While MF charges 1.5% – 2% of Fixed Fund Management Charges, while the PMS charges both Fixed charge structures and performance related fee ( For PMS the Fixed fee is 1.5% to 2%, with the 15 – 20% Performance related fee in excess of 10% Hurdle )
Also the investor have to bear the De mat Charges ( Because the PMS needs a De Mat account )
Risk Abilities
The most significant difference is between MF and PMS is in the portfolio construction, while PMS is a concentrated portfolio ( 20 handpicked and high conviction funds ) where MF is a Well diversified portfolio ( 50 – 60 Diversified companies )
Hence PMS naturally carries a larger risk than MF portfolio.
Comparison on Performances
Both the MF and PMS shows the corrections and appreciations for their schemes on same level.
Investor generally holding more than 5 – 6 schemes holding 100 – 120 stocks, hence there is a possibility of dilution on returns. But when you invest in 2 High performing funds in the respective category, the returns are on par with PMS.
Best Performing funds like Axis Bluechip and Axis Midcap Funds have given returns at par with best performing PMS
*Source – ET Wealth, PMS AIF.
Conclusion
Despite different investing approaches and fee collected, the performances are not that different.
Never choose a PMS over MF unless you have very high exposures on MF. An investor has to have sufficient exposure on MF.
Opt for PMS only if you have a large portfolio in MF. Also the PMS needs higher risk appetite and exposure. Client needs to understand the lock in period and exit loads before he signs up the PMS.
Having the combination of both MF and PMS are advisable.
