In the world of equity investing, two vehicles often spark debate among seasoned investors and financial advisors alike. Portfolio Management Services (PMS) and Mutual Funds (MFs).
Both are professionally managed, regulated investment avenues, yet they cater to vastly different investor segments, risk appetites, and investment philosophies.

At first glance, PMS and MFs may appear similar; both invest in equity, debt, or hybrid securities managed by expert fund managers. But the structure, regulation, ownership, and operational model distinguish them sharply.

PMS (Portfolio Management Services)

A Portfolio Management Service is an investment offering where professional portfolio managers create and manage a customised portfolio for investors to align with their investment goals and risk appetite. 

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In a mutual fund, investor money is pooled into a shared fund and invested by a professional fund manager into a diversified portfolio of securities as per the scheme's objective. The fund manager manages the fund portfolio to maximise returns and minimise risk. Due to the pooled nature of investment, the cost of managing the fund is also spread and therefore optimised.

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PMS provides direct ownership of stocks and other assets in the investor’s name with a highly customized investment approach tailored to individual risk tolerance, preferences, and objectives, and entails a higher cost. Both mutual funds and PMS services are regulated by SEBI.

Key Structural Differences

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This structural difference influences every aspect of the investment, from the source of returns to the way investors feel the impact of market volatility.

Mutual funds, on one hand, have democratised wealth creation in India, allowing millions of retail investors to invest through SIPs, ELSS, and hybrid schemes even with a few hundred rupees. PMS caters to high-net-worth investors (HNIs) seeking tailor-made portfolios and differentiated alpha-generation strategies that promise higher returns but also bear higher risks.

According to a report, PMS investors are “essentially buying the skill of a fund manager to run a boutique strategy.” In contrast, mutual fund investors are “participating in a shared pool governed by strict diversification and liquidity rules.”

The PMS Boom

The landscape of Indian equity investing has been changing rapidly. Mutual fund AUM in India has grown exponentially in the last few years, jumping from INR 5 lakh cr in 2007 to INR 77 lakh cr in 2025. 

The PMS industry has been growing explosively in the past few years. The number of registered portfolio managers has nearly doubled, from 260 in 2020 to 490.  The broader PMS industry now manages a massive INR 39 lakh crore across 2 lakh investors.

Against this, the mutual fund industry, with just 50 players, is double the size at INR 77 lakh cr and 5.5 cr unique investors.

These numbers tell a clear story: PMS remains a niche but growing offering (targeting high‐net‐worth individuals), whereas mutual funds continue to dominate in terms of investor base and reach. 

Let’s take a look at how PMS and mutual funds serve very different investor profiles, expectations, and operational approaches. 

Different Investor Expectations

Risk/Return Expectations

• Because PMS tends to be concentrated in fewer stocks (and often in less‐liquid or ‘undiscovered’ companies), investors expect absolute returns and are willing to accept higher volatility.
• Mutual fund investors often compare relative returns (how they did vs. peer funds or benchmarks) and expect steadier performance.
• PMS tends to hunt for deep‐value, low‐liquidity stocks that mutual funds often avoid.
• With that goes a key trade-off: PMS can deliver massive upside in good years, but can suffer sharp declines in bad years. 
• In the medium term, PMS schemes are expected to create adequate alpha in bull phases to compensate for the underperformance in bearish times.
  

Liquidity, Diversification, and Scale

• Mutual funds benefit from diversification: many stocks, many investors, and broader asset pools. This helps reduce downside risk to some extent.
• PMS is often more concentrated, with fewer holdings and more idiosyncratic risk. That means: the selection of the portfolio manager becomes critical.
• Also, PMS generally has higher minimum investments (in India, typically ≥ ₹50 lakh) and less liquidity compared to mutual funds. 

Let's look at the overall performance of PMS schemes and comparable MFs and whether they live up to those expectations.

Short-Term Performance (Last 1 Year)

Market Backdrop

• For the year ending August 2025, the BSE S&P 500 returned  -4.7%.
• The prior year Aug 2023-24, small & mid‐cap indices had soared 50%+.

PMS Performance

• The top 80 PMS funds (by AUM) returned -3.59% (Aug 2024-25).
• The year before that, they delivered +42%.
• The ‘hidden gems’ that PMS take pride in, didn’t shine this year.
  

Mutual Fund Performance

• Mid‐cap MFs: -3.3% (Aug 2024-25) vs +50% (Aug 2023-24).
• Small‐cap MFs: -3.45% (Aug 2024-25) vs +51% (Aug 2023-24).
  
• In the short term, the performance of PMS and comparable mutual funds is remarkably similar.
  

Medium-Term Performance: Patience Pays

PMS over 3-5 years

• For PMS funds that may have given a negative annual return, over a 3-year horizon, they averaged 17% p.a. (versus Index 14%).
• Over 5 years: 23% p.a (Index 20%).
• Top PMS: 5-year annualised 43% vs top small/mid-cap MFs 30% vs index 18%.

Takeaways:

• The benefit of staying invested: Time in the market is better than timing the market, which holds good for PMS as well.
• One can also conclude that a few very good years can easily make up for the underperformance in a bad year.
• Top PMS managers significantly outperform both MFs and indices over the medium term.
• The quality of the portfolio fund manager matters more in PMS than in MFs.
  

What's Different? The Performance Spread

While averages tell one story, variance (i.e., dispersion) tells another. 

PMS Performance Spread

• Out of 314 PMS funds tracking BSE 500, 290 had returns below 5%; 240 gave negative returns; 90 schemes fell more than 10%.
• There is sharp polarization among PMS; some will do very well, and many may lag badly.
• Manager selection is the key factor in PMS

Mutual Fund Performance Spread

• Among 24 small-cap schemes, only 5 fell below -10%.
• Out of 31 mid-cap schemes, only 2 fell below -10%.
• The diversification inherent in MFs protects investors from extreme downside; the relative importance of picking which fund is lesser compared to PMS.

Putting it all Together,

• Short-term averages: PMS ≈ MF
• Manager quality: Much more critical in PMS
• Variance: Much higher in PMS, both upside and downside
• Medium/long-term: PMS can outperform materially, but selection risk is high
• Risk appetite/temperament: If an investor has low risk-tolerance and would be hurt by a bad year, mutual funds are likely a better fit
• Steadiness: Mutual funds win here
• Customization, concentration, higher stakes: PMS wins here (for appropriate investors)
  
  

While PMS promises a personalised investment and higher return potential in good years, the downside in a low year requires a high risk tolerance as well as a long-term investment horizon to weather the downsides, with the condition of a good fund manager running the PMS. 

Mutual funds, on the other hand, are safer, broad-based, and diversified with lower downside risk compared to PMS. Mutual funds are less expensive and easier to invest in with a much lower investment amount, and have a wide selection of funds and categories to choose from. Mutual fun funds are suitable for all investors, new and experienced, require very little research and time to select, and are a popular investment choice. PMS is a niche product meant for affluent investors with a high risk appetite to add a flavour to an existing portfolio.

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