Portfolio Management Services

Portfolio Management Services (PMS) is a tailor-made investment service offered to cater the investments objective of niche segment of investors with minimum ticket size of ₹ 50 lacs. The clients can be Individuals or Institutions with high net worth. In simple words, a portfolio management service provides professional management of your investments to create long term wealth. The primary aim of PMS is to provide over and above the average returns to the investors. Your money will get personal attention by the PMS Manager – also known as Portfolio Manager. These PMS managers are experts who are well-versed with the market happenings and they can better guide you on important investment decisions. They also provide the following services:

  • They take the whole responsibility to manage your portfolio.
  • They understand your requirements for what kind of returns you actually expect from your investments and in which segments you prefer to invest in.
  • They track the market and invest your money keeping your requirements in their mind.

PMS Investors gets ownership in the individual shares as the stocks lies in the clients demat unlike mutual funds. Investors have a demat and a bank account in their name with the power of attorney (POA) in favour of PMS manager. In a discretionary portfolio, the manager independently manages the funds of each client in accordance with the needs of the client while a non-discretionary portfolio is managed as per client’s direction. That said most portfolios today are discretionary.


  • Flexibility:  Unlike mutual funds, the PMS manager has a fair amount of flexibility in terms of sectoral allocation, stock selection and maintaining cash position.
  • Transparency:  There is far more comprehensive communication, performance updates, fund manager access, reporting etc.
  • Focused & Concentrated Portfolio:  Generally, the PMS portfolios are far more concentrated comprising of 10 – 25 stocks unlike MFs where in the portfolios are quite diversified. Concentrated and focused portfolios in case of PMS help in significant outperformance and alpha generation in the longer run.

Mutual Funds vs PMS

  • You have a choice : You have the option to choose from large cap, mid cap, small cap and multi cap strategies along-with being able to play with the ratio between Equity and Debt by choosing between Aggressive, Moderate or Conservative Strategies.
  • Both have expenses and exit restrictions: Both these are governed by SEBI but ultimately decided by the particular fund scheme or PMS. Expenses and exit restrictions of mutual funds are almost standard but may vary wildly among PMS.
  • Both have professional managers: The person in charge of the investment decision at a mutual fund is called a fund manager. The investment decisions are taken by the portfolio manager at PMS. Both are assisted by a fund management team.
  • Difference in Ticket Size: While anyone can invest in mutual funds with as low as ₹ 100, PMS is meant for sophisticated investors. Hence, the minimum ticket size required for PMS is ₹ 50 Lakh.
  • Concentration risk: Most PMS invest in a very concentrated portfolio of stocks: 10-25. Against this, the minimum number of holdings in an equity mutual fund scheme is 25.
  • Service: For PMS, you’ll be an esteemed client and receive personalised attention. For mutual funds, you’ll be just another investor in an ocean of investors for the AMC.

Alternative Investment Funds

Alternative Investment Funds (AIFs) are relatively new concept of investments in India which have been defined in Regulation 2 (1) (b) SEBI (Alternative Investment Funds) Regulation, 2012. It refers to any privately pooled investment fund from niche & sophisticated segment of investors, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP). The minimum ticket size of ₹ 1 Crore makes it an exclusive, UHNI & Institutional investment product. To enhance risk adjusted performance, AIFs uses various complex strategies like – long-short hedging, unlisted equities, pre-IPO investments, real estate, structured credit and other special situation investments.

For all intents and purposes, SEBI currently recognizes AIFs as private investment funds which are not covered by the current jurisdiction of any regulatory body currently operating in India. Being a private investment fund, AIFs are not available through IPOs or other forms of public issue which are applicable to Collective Investment Schemes and Mutual Funds that are registered with SEBI. As per existing AIF regulations, these private investment funds have been divided into 3 unique categories – Category I, Category II and Category III and the minimum qualifying amount for these schemes is ₹ 20 crores. The only exception to this rule is angel funds that have lower qualifying criteria in terms of fund corpus.

Categories of AIFs

As per SEBI AIF Regulations, 2012 Alternative Investment Funds shall seek registration in one of the three categories

  • Category I:Mainly invests in start- ups, SME’s or any other sector which Govt. considers economically and socially viable
  • Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator
  • Category III :Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other Regulator.

Tenure and Listing of Alternative Investment Funds / Schemes:

  • For AIF scheme launched under Category I & II shall be close ended, the tenure shall be determined at the time of application and shall be for minimum three years.
  • Category III Alternative Investment Fund may be open ended or close ended.
  • Extension of the tenure of the close ended Alternative Investment Fund may be permitted up to two years subject to approval of two-thirds of the unit holders by value of their investment in the Alternative Investment Fund. In the absence of consent of unit holders, the Alternative Investment Fund shall fully liquidate within one year following expiration of the fund tenure or extended tenure.

Why AIF?

  • Have a Large Corpus – Since AIF work like mutual funds, by pooling capital, a larger corpus is pooled together. The accumulated corpus is useful in achieving set investment objectives.
  • Flexibility to raise resources – AIF may raise money from any investor whether Indian or foreign.
  • Customizable – Structure of AIF can be designed for a particular investment strategy either in terms of exposure in a specific sector or investment in diverse asset classes.


  1. Pooling of funds
    In PMS, there is no pooling of investor funds. A separate Demat account needs to be created for every independent PMS investor. Whereas in the case of AIF, pooling of funds is a necessity.

  2. Minimum Investment Amount
    A minimum investment of ₹ 50 lakhs are required for PMS. In the case of AIFs, an investor must invest at least ₹ 1 crore.

  3. Minimum Corpus
    PMS requires no corpus amount. For AIFs, corpus needs to be a minimum of ₹ 20 crores. For angel funds, the requirement is lower, at ₹ 10 crores.

  4. Tenure
    This is an important point to consider when trying to understand the difference between PMS and AIF. In PMS, there is generally no defined tenure for the securities. Instead, the agreement term between a fund manager and an investor is binding. In AIF, the tenure of the securities for Category I and II is a minimum of three years. This tenure can be further extended by another two years. The extension is subject to the approval of two-thirds of the investors by value of investment in the AIF. In case of no majority to extend, the AIF gets liquidated within one year following expiration. The expiration date is considered one year from the start date or a year from the extended time. There is no minimum tenure for Category III funds.

  5. Number of investors
    There is no cap specified on the number of investors for PMS. A fund manager can have any number of clients. The maximum number of investors to any AIF schemecannotexceed 1,000.

  6. Types of Funds
    PMS is categorised as Discretionary and Non-Discretionary Funds based on the rights of the fund manager. AIFs are classified into Categories I, II, and III based on the end-use of funds pooled.

  7. Manager Contribution
    While PMS has no specific requirements on Manager contribution, AIFs require managers to have continued interest. In the case of Category I and II of AIFs, managers should hold at least 2.5% of the corpus, or ₹ 5 crores, whichever is lower. For Category III AIFs, a manager should hold at least 5% of the corpus, or ₹ 10 crores, whichever is lower.

Choosing the Right PMS/AIF

Just as in Mutual Funds for choosing the right PMS/AIF, you need to choose the right PMS Manager and the right Management Team in case of an AIF (An AIF generally has a 3 member team with various independent advisors as well). In fact, since with PMS/AIF the managers have more freedom and flexibility it is even more important to see that the fund is managed by a consistent performer. We at Richfield Fintech tie-up only with the best managers across India with a good track record to show for themselves and ensure that the record is consistent across all categories of funds managed by the Manager along-with being consistent across all market cycles.

Taxation of PMS & AIF


Gain in the PMS is taxed as capital gains. If the holding of the stock is less than 12 months, it is considered as STCG (Short Term Capital Gain) and taxed at 15% + surcharge. In case of 12 months and above holding it is LTCG (long term capital gain) and taxed at 10% + surcharge. Dividend income is taxed at slab rates as per the new Finance Act. The PMS sends quarterly reports along-with Advance Tax & TDS Calculations for the benefit of their investors.


Category I and Category II AIFs – Pass through status which means income from these funds is taxed at the investor level and not at the fund level. However, the fund deducts 10% on the income credited to the investor.

Category III AIFs – In Cat III AIFs, the income is taxed at the fund level and the rate depends on the investment strategy and asset allocation of the fund. Here the income is considered as the income under the heads of profits or gains from business and the investment fund is taxed in respect of such income at the maximum marginal rate of tax.