The portfolio management services (PMS) industry, which caters to the investment needs of high networth individuals (HNIS), in India grew by about 14.5% last year, compared to a mere 5.7% growth witnessed by mutual funds (MFs) in the same period. The assets under management (AUM) of both PMS and the MFs stood at ₹26.9 trillion and ₹39.9 trillion, respectively, as of December.
However, the growth in the PMS industry that mandates a minimum investment of ₹50 lakh comes against the backdrop of its poor return performance compared to MFs, considered a mass product for retail investors (see graphic). This analysis is based on data from PMS Bazaar, a portal providing information about PMS funds in India.
There are about 400 asset management companies (AMCs), each offering numerous PMS strategies in the market today.
Over a 5-year period, only 30% of small-cap PMS funds could outperform the average return delivered by MFs in the same category. That is, only three out of 10 small-cap PMS funds delivered a 5-year return higher than 11.5% compound annual growth rate (CAGR), which is the average category return of small-cap MFs. Similarly, only 36% of large-cap PMS funds and 44% of multi/flexi-cap PMS funds outperformed the average return delivered by corresponding categories in the MF space over the said period.
Does this mean investing in MFs has a higher probability of earning better returns? After all, MFs are highly regulated with a tax-efficient structure and low minimum investment limit compared to PMS funds.
The answer depends on the intent of individuals investing in PMS and their ability to pick the right portfolio manager, according to experts.
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