WHAT IS THE DIFFERENCE BETWEEN PMS AND MUTUAL FUNDS??

WHAT IS THE DIFFERENCE BETWEEN PMS AND MUTUAL FUNDS?

PMS may be a sort of wealth management service, usually offered to wealthy investors. With greater flexibility and better customization, PMS aims to get superlative returns as compared to other investment avenues that specialize in an equivalent asset class. 

Types of PMS:

Discretionary: The portfolio manager makes the investment decisions and has the facility of attorney (POA) to shop for and sell shares on behalf of the investor. The portfolio manager individually and independently manages the funds of every client.

Non-discretionary: The portfolio manager needs the client to verify whether to shop for or sell the stock recommended. The portfolio manager cannot make buy-sell decisions at his own discretion; he has got to ask the client for each transaction. 

Advisory: The portfolio manager mainly gives advice on the portfolio; it’s up to the investor to execute the choices .

what are mutual funds?

While mutual funds pool assets from several investors, under PMS you'll choose whether to take a position during a scheme with limited subscribers or choose a personalized service.

Difference: 

Ease of investing

Mutual Funds: you'll invest in mutual funds together with your basic KYC in situ . You can start investing with a minimum of Rs 500, with no upper limit. Investments are often made through a spread of online platforms either through a distributor or a Registered investment adviser or maybe directly through the fund house.

PMS: Being a high-end product with a minimum investment of Rs 25 lakh, there's tons of paperwork involved. Each scheme offered has an agreement to be signed. counting on what you've got opted for, the discretionary or non-discretionary portfolio services, you would like to offer an influence of attorney to permit the PMS to transact in your stockbroking account. thanks to these factors, you can't invest in PMS on the go like mutual funds. 

Winner: Mutual funds clearly are easier to take a position . 

2) Cost Mutual Funds:

PMS: While mutual funds charge a flat fee the portfolio manager of a PMS is liberal to decide the prices . The regulator doesn't stipulate an upper limit here, as within the case of mutual funds. Hence, as mentioned earlier, the prices can range from entry loads to exit loads and even brokerage charges. In many cases, the general costs may balloon to an more than 3% once a year of the invested corpus. However, PMS providers reason that the returns they generate quite catch up on the prices . 

Winner: there's no publicly available data to guage the entire monetary value of a PMS. because it provides customized services, the prices too will vary significantly without a rigid structure. Hence, you would like to know all applicable costs before choosing a PMS. Also, if the portfolio manager excessively churns your portfolio, it's going to cause higher transaction costs which may re-evaluate and above the fees charged. 

3) 

Taxes

Mutual Funds: Like mutual funds are considered as a financial asset by the In the tax department, you would like to pay tax on the capital gains incurred from buying and selling open-end fund schemes. Equity mutual funds and non-equity mutual funds attract different tax forms. If redeemed within a holding period of 1 year, equity mutual funds attract an STCG tax of 15%. Equity funds will attract an LTCG tax of 10% for gains in more than Rs 1 lakh. The minimum holding period to qualify as LTCG is one year. For non-equity funds, STCG is clubbed together with your income and taxed as per the tax slabs. LTCG tax of 20% with indexation applies on gains for redemption of non-equity funds for a holding period of greater than three years.

PMS: Taxation of gains from PMS under the I-T Act was earlier a matter of debate. There was a difference of opinion on characterisation of gains from PMS as business income or capital gains. However, in 2014, the Delhi High Court clarified, that income from shares purchased through a discretionary PMS is taxable as Capital Gains and not Business Income. In PMS, you'll pay short term/long term capital gains, counting on the churn that the fund manager has done. Do consult a accountant or tax consultant before investing through PMS. Winner: The tax norms for mutual funds are much more simpler and straightforward to manage. If your portfolio manager indulges in high churn, it could end in significant short-term gains that would attract a tax of 15% 

4) 

Transparency / Publicly available disclosures

Mutual Funds: because of the regulator, mutual funds are alright regulated and extremely transparent. you'll get all information about mutual funds right from the portfolio disclosures to the commission earned by distributors. The performance data is out there on a day to day , making mutual funds easier to trace . you'll track the performance and portfolio of every mutual fund through numerable websites and services and compare them. This publicly available data enables you to form the proper choice. PMS: While PMS do got to make timely disclosures to the client, an equivalent is not freely available to the general public . there's no platform where you'll compare the performance of various PMS products. thanks to this lack of information, it's difficult to understand which is that the best performing PMSs. You need to try to to your own research or believe the knowledge provided by the Wealth Manager or broker. Winner: Clearly, mutual funds are more transparent of the 2 . you'll simply compare multiple schemes and choose the foremost suitable product for your profile.