What is the difference between Mutual Fund and Portfolio Management?

What is a Mutual Fund? 

Mutual fund (MF) is one kind of financial scheme where the smallest of small investor can invest his fund in order to invest in the stock exchange market and earn profit from the stock exchange. Here the investor has to select a fund suitable to his needs and keep investing in it as per net asset value (NAV) of the units. Further, as and when the NAV of that unit appreciates he can sell the units (take exit) and earned the profit of such investment. Value of NAV is, of course, subject to market fluctuations. 

What is Portfolio Management? 

While in the case of Portfolio Management (PM), it is also a financial scheme under which the investor buys the stock with the help of PM and holds stocks in his demat account. The investor owns the stocks in his demat account, but the power of attorney for this rests with the fund manager of PM. However, he can sell this stock and book the profit at his will under this PM investment scheme.

Such selection for investment in between MF or PM depends on many factors like financial goals, the amount to invest, and risk appetite of the investor etc.

In fact, the main purpose of both schemes is to earn the maximum profit for their investors and make them risk-free from market fluctuations. 

What are the main differences between Mutual Fund and Portfolio Management? 

• In the case of MF, the investor gets units, which represent stocks. While in PM, the investor holds the stocks in his demat account, but the power of attorney for such stock rests with the fund manager.




• To be an investor for MF, a few hundreds or thousands of rupees will be sufficient. Even one can enter any scheme with a sum of rupee five hundred only on monthly basis through SIP. While in the case of PMS, the investor would have to bring in lakhs of rupees for investment.




• When one invests in mutual funds, he will have to bear expenses such as fund manager charges and even an exit load (charges when one exits the mutual fund). This amount is not very high as such. While in Portfolio management services, one has to pay an initial fee and also have a profit sharing agreement. This is a high cost as compared to MF investment.




• In the case of Portfolio management services, generally, it is offered to HNI’s and the rich people in society. While almost any citizen (smallest) can invest in mutual funds.




• Portfolio management services offer investment services, tailored to meet investor’s financial goals. The investor is free to invest a lot of money, in a single stock of his choice. While in case of MF it is the fund manager who decides where to invest and how much to invest.

In case of transparency and regulations are concerned Mr is more transparent as compared to PMS as it is stringently regulated by SEBI whereas PMS is not so transparent in their disclosures as such.

• In case of fees & other charges compared to MF, PMS charges a very high fee for its services. It charges various kinds of charges and fees such as:
  

• Entry Load – An entry load is usually charged to the investor at the time of availing the PMS.
  

• Fund Management Charges – It is a charge for managing the fund and is variable in nature as specified by the PMS. 
  

• Profit Sharing - Some PMS schemes also have arrangements for profit sharing, wherein the investor is charged a certain amount of fees or profit over the extra return earned in the fund by the investor with the help of PMS. However, there is no profit sharing in the MF scheme as such. 
  

• Some PMS schemes charge some fixed amount instead of the profit-sharing component and charge investors only a fixed monthly fee. On the other hand, MF has a minimal expense ratio and exit load (up to a certain period) when the investor sells his units. Hence, to avail the services of MF is more cost-effective than that of PMS.
  

• As regards the risk aspect of investment, theMF offer various options and diversification for investment suitable for investors with different risk appetites. While PMS investments are riskier as it usually holds a very concentrated portfolio of many stocks.
  

Further, SEBI has imposed restrictions on MFs which take positions in derivative instruments whereas PMS do not have any such restrictions on its operations. This is to safeguard the interest of common investors.

It is commonly believed that PMS is giving superlative returns as compared to mutual funds with SEBI. However, it is not so and even mutual funds have given high returns in a consistent manner, over the years. Consistent investors have earned a very high return (in many lakhs) over a period of 10 to 15 years. 

PMS in India is still in its early stages and has a long way to go. Hence, we conclude that mutual funds remain the most convenient and suitable way of investing in the financial markets. 

Currently, MF has been able to attract millions of small persons to invest their savings in stock markets and for this mass media services have contributed a lot.  

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Created on Aug 8th 2018 05:33. Viewed 514 times.

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