PMS & Alternative Investment Funds
PMS and AIF sit above mutual funds in both minimum size and risk. They are genuinely not for most investors, and we would rather say that plainly than sell one to someone it does not suit.
Distributed by Naveen Kumar Pandey, AMFI ARN-276664, EUIN E521164No consultation fee
What this actually is
In a Portfolio Management Service, a SEBI-registered portfolio manager runs a portfolio of securities in your own demat account, in your own name. Unlike a mutual fund you own the underlying shares directly, portfolios are usually far more concentrated, and there is no pooling with other investors' units.
An Alternative Investment Fund is a privately pooled vehicle registered with SEBI in one of three categories — broadly, Category I for venture capital, SME and infrastructure funds, Category II for private equity and debt funds, and Category III for hedge-fund style strategies that may use leverage and derivatives.
Both carry SEBI-mandated minimum investment amounts that are far above a mutual fund's, precisely because the regulator expects the investor to be able to absorb the risk. Fees are higher and often include a performance component, and liquidity is much more restricted — an AIF in particular may lock money up for years.
Key facts
- Regulator
- SEBI, under separate PMS and AIF regulations
- Minimum investment
- Set by SEBI and far above a mutual fund's. Confirm the current threshold before planning around it
- PMS ownership
- Securities held directly in your own demat account and name
- AIF structure
- Privately pooled fund, registered in Category I, II or III
- Liquidity
- Restricted. AIFs in particular may lock capital for several years
- Fees
- Higher than mutual funds, and often include a performance fee
This suits you if
- Investors with a large existing portfolio who already have their basics covered
- People who understand concentration risk and can hold through a long drawdown
- Investors looking for exposure to strategies mutual funds cannot run
We would say no if
- Anyone who does not already have an emergency fund, adequate insurance and a core mutual fund portfolio
- Investors who might need the money back at short notice
- Anyone drawn in by past performance figures without reading the risk factors
Some conversations end here, with us telling you this is not the right product for you. That is a perfectly good outcome.
How it works, step by step
Suitability first, product second
We go through your total net worth, existing portfolio, liquidity needs and experience. Most of these conversations end with us recommending nothing.
Understand the strategy
What it holds, how concentrated it is, what a bad year has looked like, and what the manager does in a falling market.
Read the fee structure properly
Fixed fee, performance fee, hurdle rate, high-water mark and exit load. These materially change your net return.
Complete onboarding
PMS needs a demat and trading account and a signed agreement with the portfolio manager. AIFs have their own subscription documents.
Review against the mandate
Judge the manager against the strategy they promised, not against an unrelated index.
What can go wrong
Every product has a downside. Here is this one's, in plain language, before you decide anything.
- These are high-risk, high-minimum products. Concentrated portfolios can underperform an index badly for years at a time.
- Liquidity is limited. An AIF commitment can tie up capital for years and may involve drawdowns on a schedule you do not control.
- Category III AIFs may use leverage and derivatives, which amplifies losses as well as gains.
- Fee structures are complex and can consume a large share of the gross return. Read the fee section before the performance section.
- Past performance shown in a pitch deck is selected by the person pitching. Ask for the full record, including the bad years.
- We will decline to place these where we do not think they are suitable, even if you ask.
Questions people ask us about this
How is PMS different from a mutual fund?
In PMS you own the shares directly in your own demat account rather than owning units of a pool, portfolios are far more concentrated, minimums are much higher and fees are usually higher too. More concentration means more risk in both directions.
What is the minimum investment?
SEBI sets minimum ticket sizes for both PMS and AIF, and they are substantially higher than any mutual fund. The thresholds have been revised before, so we confirm the current figure with you rather than quoting one that may be out of date.
Would you recommend this to me?
Only if your emergency fund, insurance and core portfolio are already in place and the amount is a sensible share of your net worth. For most people the honest answer is no, and we will say so.
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Still deciding?
Ask us anything about this product — including how we are paid on it. We will answer straight.