Invest Smarter With PMS & AIFs

A PMS, or Portfolio Management Service, is an investment service of professional financial investing that is offered by financial institutions, usually by asset management companies or SEBI-registered portfolio managers in India. PMs are for high-net-worth individuals (HNIs) or any investors who are looking to have their investments in stock, bonds, or any other financial asset(s) actively or professionally managed to better suit their unique goals.

An Alternative Investment Fund (AIF) is an investment vehicle that collects funds from investors for the purpose of investing in a wide range of assets other than stocks, bonds, or mutual funds. AIFs tend to be available for sophisticated investors and are structured and regulated differently from traditional regulated investment funds.

PMS: ₹50 lakh minimum (as per SEBI).

AIF: ₹1 crore minimum.

These high entry points make them suitable only for HNIs and UHNWIs who can afford to take on additional risk and have a long-term horizon.

You possess the real securitites in your account with PMS, while you hold a unit of a pooled scheme with mutual funds. PMS portfolios are generally concentrated (15-25 stocks), while mutual funds may hold 40-70 stocks.

The advantage of a PMS is that they are personalized and transparent, whereas mutual funds are standardized and easier for mass retail investors.

PMS: Taxed at the same rate as direct equity. STCG is 15%, while LTCG is taxed at 10% above ₹1 lakh. Any dividends and interest from PMS also incur tax.

AIF: AIF tax structure depends on the Category.

Categories I & II: Are pass-through categories where tax would be paid by the investor on distribution.

Category III: Taxed at the fund level at approximately 42.7%.

It is essential that you have a clear understanding of the taxation, since it impacts your net returns.

Yes, risk is a part of the game here. PMS portfolios can be volatile because they are concentrated in fewer names. AIFs have risk based on the strategy applied, including default risk for credit funds, illiquidity risk for private equity funds and leverage risk for hedge funds.

But increased risk is also what allows for the opportunity to have increased returns. The important thing is to match strategy to be aligned with your own comfort level and horizon.

Yes, NRIs (Non-Resident Indians) are permitted to invest in Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) in India, with certain restrictions. The investment has to be made through NRE, NRO or FCNR accounts and must comply with FEMA guidelines. In general, NRIs can invest in PMS/AIF if they are eligible and comply with conditions of the Fund Manager, which often includes minimum subscriptions. In most cases, repatriation of any returns is permitted, subject to some conditions outlined in the programme documents. The taxation implications differ compared to resident investors, where capital gains and dividend income is taxed in India. NRIs investing in PMS/AIF are advised to seek independent tax advice and/or to consult the Fund Manager prior to any investment.

Fees typically charged for PMS and AIFs often depend on the structure and strategy. Generally for PMS, investors pay a management fee of 1–2.5% per year on the assets under management (AUM) and a performance fee of 10–20% of profits made above a specific benchmark. Generally AIFs also charge a management fee of 1–2.5% and performance or incentive fee in the range of 15–25% of profits. Some AIFs may also have some entry or exit fees. Fee structures can vary by fund manager and strategy or even by fund under the same manager, so it is important for investors to read the offer document carefully to understand the fees before making a commitment.

Indeed, both PMS and AIFs can have a lock-in period; however, these periods vary. PMS tends to have an open structure, meaning that if you need to redeem funds you can do so at any time, even within a few months if cash is available, although some strategies may stipulate an investment horizon of 1 year or longer. Depending on the AIF fund (especially with Category II and III), lock-in is often around 3-5 years, but can sometimes be longer. The lock-in period helps preserve stability of the fund’s capital, and provides better align with the fund’s investment strategy.

Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) appeal to high-net-worth individuals (HNIs) and sophisticated investors looking for customized investment strategies, diversification, and potentially higher returns than traditional mutual funds. Investors should have a long-term investment horizon, high risk tolerance, and sufficient net worth to meet minimum investments. PMS and AIF are suitable for people looking for active portfolio management, exposure to alternative assets, and some tax-efficient vehicles rather than unsophisticated retail investments.