Are Mutual Funds better than PMS

A mutual fund is an investment vehicle consisting of a portfolio of stocks, bonds, etc by a professional fund manager. The money is collected from the investors and is invested collectively by the professional fund manager.

Are Mutual Funds better than PMS

Portfolio Management Service (PMS) offers professional management of investment to deliver high-risk adjusted returns. Qualified fund managers manage investors’ money by investing it in a portfolio of investment assets like stocks, bonds, fixed-income securities, etc for a fee.

These are pretty similar, but here are some differences between them-

• A mutual fund is a pool of funds whereas a PMS is a portfolio designed for you in your demat account.

• The minimum investment amount in the case of a mutual fund is as low as Rs 500 whereas a PMS requires a minimum of Rs 50 lakhs.

• Equity Mutual funds have to invest up to 65 % in equity of the market condition. Whereas PMS are flexible with their investments and can increase or decrease their allocation to equity based on market conditions and investor requirements.

• PMS focuses on performance and can make investment decisions such that the absolute returns are maximized. A PMS can have a concentrated portfolio whereas MFs portfolios are more diversified.

• PMS is required to make timely disclosures to the clients, whereas in the case of MFs they are strictly regulated and all the information is in the public domain including the portfolio.

• Investing in mutual funds is easy. If the investor’s KYC is complete, investment can happen right away. Whereas PMS documentation takes 15-20 days to complete and then only investments can be made.

An investor must choose PMS only when the set of mutual funds is not able to provide the same exposure. Usually, a portfolio size of Rs 2-3 crore will let an investor allocate Rs 50 lacs in a PMS.

How to become a better investor using Mutual Funds

The first and most important thing about becoming a better investor is to know and learn about investing thoroughly. Read and understand about investing, why are you interested in investing, know your goals, your risk appetite, etc.

How to become a better investor using Mutual Funds

For instance, Just the way when you purchase any new mobile or any electronic device you learn and understand it thoroughly and compare it with another device. Likewise, selecting any mutual fund or any fund without any knowledge, of what someone tells you won’t work. One needs to gain lots of knowledge about investing to become a better investor. Here are some important points to keep in mind to become a better investor using MFs – Identify your purpose for investing This is the very first step towards investing in a mutual fund. You need to be clear with your investment goals. If you don’t have any specific goal, you should at least have clarity on how much wealth you want to accumulate. Identifying your investment goal helps in investing based on the level of risk, lock-in period, returns, etc. Know your customer requirements (KYC) To invest in a mutual fund, investors need to comply with the KYC guidelines. For this, the investor needs to submit copies of their PAN card, proof of residence, etc as specified by the fund houses. Know about schemes available Make sure that you have understood the different types of schemes available. Align your risk appetite and investment goals with the selected schemes. Seek the help of an investment advisor if you aren’t sure. Therefore, these are some key factors that might help in becoming a better investor using mutual funds.

How many Mutual Funds are good enough in a portfolio

All investors are different, every investment is unique. Before deciding on the number of mutual funds, you have to identify your financial goals and invest accordingly.

How many Mutual Funds are good enough in a portfolio

There is no perfect portfolio that would work for everyone. You have to be prepared by doing proper research and finding out what works for you.

Therefore, unless you are very well versed with the markets and have expertise in mutual funds, a good rule of thumb would be to own-

• In a debt category, one or two funds are good. You must reflect on your time horizon and associated taxation.

• You can select one index fund or a combination of two funds in a large-cap category. If you add another fund, there will be a high level of overlap in the large-cap portfolio.

• You should invest in two small-cap and two mid-cap funds. Usually, the overlap in these categories is low if the chosen funds have a different strategy (value/growth).

• In the case of a foreign mutual fund, one fund is fine as far as the underlying is an index of a foreign country (NASDAQ/NYSE).