PMS vs Mutual Fund: Why I Invested with PMS Fund? Is Portfolio Management Services Worth It?

Hello Everyone! In this blog, I’ll share why I decided to invest through Portfolio Management Services (PMS) despite everybody advising me against it & what factors helped me take this decision. 

What is PMS?

1. PMS, or Portfolio Management Services, is a professional service where fund managers actively manage your stock portfolio, to achieve maximum returns & charge a fee for it.
2. As per SEBI, over 400 PMS funds manage assets worth more than ₹30 lakh crores for ~2 lakh investors (as of October 2024)
3. The minimum investment required to opt for PMS is ₹50 lakhs. 
4. PMS had always appealed to me, primarily for its higher returns, but I had doubts. Finally, I decided to research a bit seriously. I spoke to a number of people about this, my friends, my financial advisor, researched online. Everywhere I was advised against it. Mutual funds comes out as a better investment option. But, with careful analysis of my current situation, expectations & some courage I went ahead with it. I will share the points that helped me decide, they might be helpful for you.

Reason 1: Managing Sudden Liquidity

1. Mutual funds are great. Specially for disciplined investments like SIPs from monthly savings.
2. However, events like receiving a Bonus, ESOP realisations, or property sales create sudden liquidity. Investing such a large sum directly into mutual funds isn’t advisable (unless you know what you are doing).
3. 3 years back, I had a similar liquidity event. My financial advisor invested the entire lump sum in a debt fund first and then transferred it to equity via an STP over 8-12 months. 
4. This slow & systematic is the ideal way of investing large amounts with MF, as this minimises risk. But it also limits returns, as debt funds typically yield around 7%.
5. So 1 reason to choose PMS was that the entire corpus start working for high returns from day 1.

Reason 2: Risk-Managed High Returns Potential

1. The funds that I had shortlisted & spoken with, quoted coservative returns of around 20-25% & aspirational figures reaching 35-40%. This is post tax, post fees, net returns. 
2. Now these are excellent figures, but I thought that in last 2 years, multiple small or mid cap mutual funds, (like Motialal Oswal Midcap) fund have achieved similar or even better returns. And they have advantage of taxes, fee, minimum investment value. 
3. Then I realised I cannot compare PMS with a single category mutual funds. The risks are different.
4. Investing large lump sum in 1 mutual fund or 1 category of mutual fund is high risk. To mitigate risks, I will have to diversify across large, small, index, thematic etc. And this will then reduce the net returns. 
5. PMSs, on the other hand, claim to offer risk adjusted high returns. They are usually multicap, they buy sell stocks much more than mutual funds.
6. So my risk is similar to large cap, but target returns are similar to small or midcap.

Reason 3: Worst Case Scenario

1. For any investment, it is good a practice to visualise what is the worst that can happen. Can the entire sum be wiped out? I think that is unlikely.
2. So, let us assume the fund underperforms the sensex or benchmark by 5%. Sensex delivers 12%. So, the fund is at 7-8%. Net of taxes it would be around 6%. They don’t charge a fee if they underperform. 
3. I think thats ok. If the downside is ending up with FD like returns. And the upside is getting 25% returns, where the corpus might double every 3 years. With this calculation, I think I will take my chances. 

Reason 4: Leveraging Professional Expertise

1. My previous experience with a financial professional has been stellar. With him, our portfolio has transformed from 6% (Fixed Deposits) to 20% (current IRR of Mutual Funds)
2. So, I think it makes sense to bet with a professional again who might push this to 25-30%.
3. Now, there are individuals who do great at stock markets themselves, and might not need such help. But I am not one of them. I am not good at handling market volatility. And if there is someone who can do the job much much better than me, then it makes sense to outsource it.
4. This frees up my time to focus on what I enjoy, while ensuring my investments are actively managed.

Final Thoughts

1. These are the key reasons I chose PMS for my investments. Of course, these are just projections and expectations. Time will reveal whether these claims hold true. Since I’m early in my PMS journey, I won’t share the specific fund I’ve invested in just yet. Once results start to come in, I’ll provide updates.
2. For now, if you have any questions about my investment journey or want to share your experiences, feel free to comment. Don’t forget to like, share, and subscribe if you found this post helpful. Stay tuned for more updates!