Difference Between Mutual Fund And Portfolio Management

Author: Ananthi Mathur

Growing rich is all about how you manage your money. This is the key to making money. The wise investors from India, have realized this very long ago. They want big returns from their investment. They mostly invest in mutual funds, stocks and even avail portfolio management services, popularly called PMS Services.

Portfolio management is basically selecting the right investment, which has a minimum risk and gives you maximum returns. Portfolio management services to the portfolio management for you. High Net Worth Individuals are rushing towards portfolio management services. Today, Mutual funds are facing hard competition from portfolio management services. The strength of Portfolio management service is their Portfolio Planning.

Now comes the difficult part that should you invest your earned money in mutual funds, or should you go for portfolio management? The clue to making this decision is to understand the difference between mutual funds and portfolio management.

What is a mutual fund in India?

A Mutual funds in India collects and invests your and other investor’s money, into stocks, bonds or even a mix of both. The total investment made by the mutual fund, either in stocks, bonds or both, is further divided into units. Depending on the cash you invest, you are given units of the mutual fund. The Net Asset Value gives you the value of the mutual fund.

The mutual fund is managed by a fund manager. The fund manager decides which stocks, bonds or assets, the mutual fund must buy, depending on the mutual fund type. The mutual fund manager invests your money for you on your behalf. He makes the investment decisions for you.

What is portfolio management in India?

Portfolio management is simple. Select an appropriate investment, which gives a maximum return, but at a minimum risk. PMS services, come under the alternate investments fund. It is a type of wealth management service.HNI’s and the rich in India, love portfolio management service and use it to invest in their stocks. PMS also offer investments in fixed income securities (debt), however, few investors opt for this service. Portfolio management services are offered by brokerages and mutual funds, which have been registered with SEBI. The portfolio management process is supported by a portfolio software.

Fees charged by PMS Services: PMS charge you an initial fee of 2-3% on your investment. Once you start making profits from your investment, there is a profit sharing agreement. The investor would have to bring in an amount of at least INR 25 Lakhs, to invest in the portfolio management services.

How does portfolio management work in India? You opt for a portfolio management service. Then a bank and a demat account are opened separately under your name. The money you bring is invested under your name. Shares are held in a demat account under your name. The dividend you get from your investment is credited to your bank account. You sign a Portfolio Management Services agreement, where you give Power of Attorney, to the portfolio manager. The portfolio manager gives you the execution report of your investments, as mandated by SEBI, every 6 months.

Difference Between Mutual Fund And Portfolio Management

  • If you are an investor in equity mutual funds, you get units, which represent stocks. In portfolio management, you hold stocks in your demat account. You own those stocks in your demat account, but the POA stays with the fund manager.

  • You can invest a few hundred or thousands in a mutual fund. You would have to bring in lakhs of rupees, to invest in portfolio management services.

  • When you invest in mutual funds, you have basic expenses such as fund manager charges and even an exit load. This amount is not too much. Portfolio management services, charge you an initial fee and also have a profit sharing agreement. This is a high cost.

  • Portfolio management services are offered to HNI’s and the rich. Almost any citizen can invest in mutual funds.

  • PMS offer investment services to meet your financial goals. You can invest a lot of money, in a single stock. But in a mutual fund, the fund manager decides where your money is invested and how much is invested.