As Markets Swing, Portfolio Management Services Set For Comeback

As equity markets erratically swing sideways, portfolio management services (PMS) could increase in relevance for HNI and UHNI investors. The Association of Portfolio Managers Association of India (APMI) increased its investor education efforts in order to broaden its horizon. 

As of June 2026, PMS assets account to Rs 43.3 lakh crore across about 2.2 lakh client accounts. However, around 72% of it is from EPFO and PF managers. Interestingly, in June, total net inflows swelled to Rs 3.5 lakh crore in June, compared to Rs 4,085 crore in May. Most of these increased flows, as per APMI, is led by a material rise in discretionary inflows, who mostly include individuals or family offices - indicating that as bull market retreatment has increased the demand for specialized services. 

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"PMS returns have been good if you look at a 10-year horizon, but in the last few years, especially post Covid-19 many mutual funds have been giving similar returns as earnings were much broad based, and it has reduced the charm of investing in PMS. But we expect the differential returns making a comeback, as equity returns have not been good or flat for the past couple of years and PMS portfolio returns could be better as stock picking beats booming liquidity in return generation," says Sushant Bhansali, vice-chairman of APMI. The association includes 400 SEBI registered portfolio managers.
 

PMS Vs Mutual Funds Vs SIFs

Portfolio management services or PMS differ from their closest cousins like mutual funds (MFs) or Specialised Investment Funds (SIFs). While mutual funds pool funds and invest, SIFs too follow the same path at a much higher rate of specialization and play over a wider set of hedging products. However, PMS provides segregated accounts of investors with around 18-20 products. 

"An MF running a Rs 40,000 crore portfolio cannot hold 18 stocks due to regulatory diversification limits and daily liquidity obligations, but a PMS can. Securities sit in the client's demat account and can be customised to exclude certain sectors, retain legacy positions, etc," says Athreya. 

PMS, unlike mutual funds, can take short positions, derivatives and other such products that MFs do not allow them. "PMS or at least Cat 3 AIF is the closest we have to hedge funds. They are a little more exotic and can go short as well as long thereby carrying a higher level of risk with a specialised risk-reward, often with more complex instruments" says Bruce Keith, the co-founder and CEO of InvestorAi.

As they engage in riskier products, PMS and SIFs have a Rs 50 lakh and Rs 10 lakh minimum investment threshold respectively; much unlike mutual funds. While SIFs target mass affluent class, PMS is more for HNIs and beyond such as family offices, small business owners, CXOs of large companies, NRIs, employees with high number of ESOPs etc tend to veer towards PMS. 

"While the recently introduced SIFs by SEBI are likely to attract the mass affluent segment with a Rs 10 lakh minimum investment, PMS settles into what should be a bespoke, concentrated, Rs 50 lakh- Rs 25 crore mandate business for investors who want a specific Manager's book, not a category. Fewer managers, bigger tickets and higher average AUM per client is how we expect the PMS industry to evolve," says Karthik Athreya, managing director at Sundaram Alternate Assets. 

The minimum investment threshold makes PMS an elite and exclusive product. "A Rs. 50 lakh minimum ticket makes sense only if it fits within a proper asset allocation. Investors should ideally have Rs. 3-5 crore of financial assets, so that a single PMS is roughly 10-15% of the portfolio. Too much exposure to one PMS won't provide enough diversification," explains Sougata Basu, the founder of fintech CashRich.

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Active Selling And Buying 

With exclusivity comes a myriad of advantages. A PMS account is very active and managers can respond to market movements much more sharply than an MF. A PMS account is much more transparent with almost daily activity, but MFs provide monthly statements. All in all, PMS assets are much-actively managed as compared to a MF. 

They can capture themes ahead of a broad market movement. "MF managers are often forced to buy at market tops (when inflows peak) and sell at market bottoms (when redemptions peak), whereas a PMS book comprises separate accounts, so a redemption in one account does not affect positions in another," says Athreya. 

Experts also believe that it's unfair to compare mutual funds with PMS. "The competition for PMS is not necessarily mutual funds but an equity/ debt portfolio that's personally managed by a client. We have to appreciate that PMS is not a product but a service. PMS can also identify themes early, like say data centres or defence much ahead of a mutual fund. Infact Portfolio Managers are increasingly investing in MF/ETFs for their clients especially for multi asset portfolios," says Bhansali.

As investors mature, the advisory component of portfolio management is expected to gain ground. "It's really easy for anyone to recommend what to buy, but no one actually tells when to sell. What a PMS or a managed equity basket service does is provide this service letting you know what is being sold and what is being bought in its place" explains Keith.

And, a lot more buying and selling happens within a PMS account as compared to a MF. 

How Is PMS Growing?

As per Athreya, the discretionary PMS (DPMS) segment has grown at approximately 17% CAGR over the last five years. And the number of registered PMS managers increased from roughly 360 to over 520 during the same period. 

Yet, the popularity of PMS services is not growing well beyond metros.   "It's mostly popular only in top 8-10 cities while there are HNIs and other possible clients across the nation like tier-2 towns etc. We are hence trying to increase awareness amongst possible clients as well as distributors," says Bhansali.

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Added to that, most HNIs prefer MFs over PMS. Basu also adds that PMS returns are far from uniform. "The range of returns across PMS strategies varies extensively. A few perform very well, while others barely match an index fund. Published PMS numbers also carry survivorship bias, since underperforming strategies quietly shut down. Mutual fund returns, by contrast, are far more transparently available," he explains.

The tax component of PMS is also much more complicated than MFs. While one pays tax only when MFs are redeemed, the taxation of buying and selling - taxes it at the account level. Every time a trade happens, tax is levied. 

"It's not as much of a disadvantage," says Bhansali adding, "You pay the same tax but it's much more frequent and probably front ended. Also now that short term and long term capital gains (for over 12 months) tax on equities are at 20% and 12.5% respectively, there isn't much difference. Further, in increasing tax rates regime PMS investors may be better off, having tax paid gains at lower rates."
 

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