PMS & AIF Investments

What is a PMS?

With Portfolio Management Services, a SEBI-registered portfolio manager runs a portfolio of stocks, or sometimes bonds, that sits in your own demat account. In a discretionary PMS the manager makes the buy and sell decisions. In a non-discretionary PMS each trade needs your approval. PMS portfolios are usually more concentrated than mutual funds, typically holding 15 to 30 stocks.

Fees are either a fixed annual management fee, a performance fee above a hurdle rate, or a mix of both, plus brokerage and custody charges. SEBI requires portfolio managers to report performance on a common basis, which makes strategies easier to compare.

What is an AIF?

Alternative Investment Funds are privately pooled vehicles regulated under the SEBI (AIF) Regulations, 2012. They come in three categories:

• Category I covers venture capital, SME and infrastructure funds.
• Category II covers private equity, private credit and real-estate funds.
• Category III covers long-short and other trading strategies, which may use leverage.

Is it right for you?

PMS and AIFs suit investors with large surpluses who accept higher minimums, more concentrated risk and, for many AIFs, money locked in for several years. Taxation also works differently from mutual funds. In a PMS, every trade is taxed in your hands because you own the shares directly. Category I and II AIFs pass most income through to investors, while Category III AIFs are generally taxed at the fund level. We go through these trade-offs, and the product's disclosure document, before you commit.