There are so many ways of investing in equities. Such ways are a direct investment in stocks through a mutual fund, portfolio management service, etc. Best UTI equity mutual funds are such a great way of investing. Direct investments need the expertise of the investors whether investments through mutual funds and portfolio management services involve active fund management by professional fund managers. Here, in this post, we will discuss the difference between MF and PMS. Before proceeding further let’s have a clear idea about both Mutual funds and Portfolio Management services.
In comparison with PMS, mutual funds are more popular as you can pay small amounts and there are multiple choices of funds. An investor may invest as low as Rs 1,000. Some funds even allow investing Rs 500 through a systematic investment plan. Besides, due to its availability of funds, investors may choose funds according to their financial goals and risk-taking ability. Apart from the equity-oriented funds, AMCs also offer debt-oriented funds and hybrid funds having a mixture of both equity and debt. It offers versatile opportunities for investors.
Portfolio Management Service
In comparison with mutual funds, portfolio management services offer higher control on the choice of portfolio composition as the number of investors is less. Also, it is suitable for big investors. Tighter regulatory control on MF makes it safer than the investment through PMS.
Now let’s discuss a few factors that differentiate mutual funds and portfolio management services.
Transparency in Investment:
Portfolio management services provide complete transparency in money management. Here you will be aware of every sale and purchase of shares, brokerage, date of transaction, and portfolio manager’s exact fee. This level of transparency lets you know where your portfolio manager made your money and where he lost it.
In the case of mutual funds, you get a monthly report of the final holdings and the quarterly total expense ratio. Therefore it is a bit difficult to gauge the performance of a portfolio management service product before investing in it.
Customized Investment Solutions:
It is believed that portfolio management services provide customized services with several brokerages. These brokerages offer you the choices of various model portfolios such as large-cap and mid-cap according to your requirements. However, it is not a scalable model. Huge portfolio managers do it for investors who belong to the HNI category. But mutual funds don’t offer such options.
Flexibility in Investments:
A portfolio management service, unlike mutual funds, is not constrained by a clear objective and strict conditions. This gives the portfolio manager flexibility in how and when he wants to invest or withdraw your money. He can make bold cash calls if he detects risk. He can even sell off all of his equity interests and keep only cash on hand if the scenario calls for it. This is fantastic insurance against market meltdowns like the one in 2008. Portfolio managers rarely make such audacious cash calls, though.
Separate Status Update on Investments:
Your portfolio is handled separately while using portfolio management services. This stops the behavior of others from affecting your portfolio. Let’s imagine that a mutual fund’s fund management needs to create liquidity by selling the most liquid equities since many investors are redeeming at once. This alters the portfolio of the fund and may negatively impact the portfolio of those who continue to invest. In contrast, if you choose to continue investing, the portfolio manager will only sell the complete portfolios of certain clients while using portfolio management services.
Fee Structure Involved:
A fixed fee schedule applies to mutual funds. The companies that provide portfolio management services will present you with multiple options all at the same cost.
Taxation Involved in Investment:
Mutual funds provide plans and are pass-through entities, allowing fund managers to buy and sell equities as often as they like without paying taxes. In contrast, when you use portfolio management services, equities are held in your name and a capital gain or loss is realized each time the portfolio manager sells a share.
Hopefully, now you know how mutual funds differ from portfolio management services. We recommend you spend a good amount of time understanding the market, seek professional goals, and then make a decision.