Portfolio Management Services vs Alternative Investment Funds: What’s better for high-net-worth individuals

Assets managed by the Indian alternative investment industry, comprising Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), have gained immense popularity among wealthy investors. With the current investment industry offering an array of strategies beyond mutual funds, AIFs and PMS have emerged as two of the most sought-after options.

What are Alternative Investment Funds?

Alternative Investment Funds, or AIFs, are pooled instruments of investment that function by buying assets like hedge funds, commodities, real estate, derivatives, private equity, and venture capital—all of which are not typically available to retail investors. AIFs are classified into three categories—Category I, Category II, and Category III. The AIF pool is managed by a fund manager, who invests the money in alternative assets that aren’t usual stocks or bonds. With such diverse areas, AIFs offer higher returns from high-potential opportunities.

What are Portfolio Management Services?

Another promising avenue for wealthy individuals, Portfolio Management Services (PMS) allows them to invest across a number of asset classes like cash, equities, debt, fixed-income instruments, and structured products, among others. Such funds are managed by a portfolio manager, who handles all the investments on the subscriber’s behalf. For those who have a decent amount of money but don’t have the time or expertise, a PMS can be a good option.

Difference between AIFs and PMS

AIFs act as a pooled investment vehicle, whereas portfolio management services are individualised..

While high-net-worth individuals (HNIs) and retail investors can easily pool their money in PMS, AIFs also attract sophisticated investors, including HNIs, institutional investors, and accredited investors..

Both investment avenues are regulated by the Securities and Exchange Board of India (SEBI)..

While PMS investments have no fixed tenures for securities, Category I and II AIFs are usually closed-ended with a minimum tenure of three years..

AIF’s SEBI-mandated minimum investment amount stands at ₹1 crore, while PMS has a minimum of ₹50 lakhs.

With both AIFs and PMS being high-risk and high-reward instruments, a decision must be made on the basis of one’s financial goals and risk tolerance. Otherwise, while PMS might generally suit high-net-worth individuals who are looking for tailored investment strategies, AIFs are preferable for those seeking exposure to alternative assets.