One puts shares in your name. The other puts your money in a pool. Nearly every practical difference follows from that.
The one-line difference
In a PMS, a manager buys shares in your own demat account. You own them.
In an AIF, you buy units of a fund. The fund owns the assets.
That single fact decides who pays tax and when, what the manager can buy, how fast you can leave, and what you get to see.
Side by side
| PMS | AIF | |
|---|---|---|
| You own | The shares, in your name | Units of a fund |
| Minimum | ₹50 lakh | ₹1 crore |
| You pay | Upfront | Committed, then drawn down |
| It can hold | Mostly listed shares | Unlisted equity, private credit, property debt, derivatives |
| Borrowing | No | Category III may |
| You can see | Every share, any day | A NAV and a report |
| Getting out | Usually days | Years. Weak secondary market |
| Tax | You report, every year | Depends on the category |
Ownership: your demat, or the fund's books
SEBI says a portfolio manager must not hold your securities in its own name, and must keep each client separate. So a PMS is genuinely your portfolio, run by someone else.
An AIF is the opposite, deliberately. Pooling is what lets a fund write a ₹40 crore cheque into a private company and take a seat on the cap table. A segregated account cannot do that. That is the entire point of the structure.
Tax: where the comparison usually goes wrong
In a PMS, nothing sits between you and the tax department. Every sale the manager makes is yours, that year. A high-turnover PMS bills you tax annually even if you never withdraw a rupee. Ask for turnover, not just performance.
In an AIF, it depends. Categories I and II pass income through to you, keeping its character. Category III settles tax inside the fund, so what you receive is already net.
The trap: comparing a Category III post-tax number against a PMS gross number. Find out which one you are being shown before you compare anything. The tax schedule has all of them.
Liquidity: days, or years
Most equity PMS mandates have no lock-in. Exiting means selling your shares, and the money lands in days. Though "liquid" still means selling into whatever market exists that week, which in a concentrated small-cap book is not always comfortable.
AIFs are built for the opposite. Closed-ended Category I and II funds run five to eight years. Money goes in over the first few and comes back as deals exit. Category III sits in between, with periodic windows.
If there is a real chance you need this money back on your own schedule, that settles the question before anyone mentions returns.
So which one fits?
The useful question is not which is better. It is what job you are hiring it to do.
- Concentrated Indian shares, visible, exitable. That is a PMS. You are buying a manager's stock-picking and you can watch them work.
- Something the stock market cannot give you. Private credit, pre-IPO, property debt, a long-short book. That is an AIF. You are buying access, and paying in liquidity.
- Less dependence on Indian equity. That points to a Category II or III AIF. A second PMS just concentrates the same risk.
- Not sure you can leave it alone for five years. That points to a PMS, or to neither yet.
They are not either/or. Above a few crore, a common shape is a PMS for listed equity plus one or two AIF commitments for what the market cannot offer. Our Fit Finder asks seven questions and shortlists across all thirteen structures, including telling you when neither belongs in your portfolio yet.
Questions people ask
Can I have both?
Yes, and above a few crore it is common. They are separate structures with separate minimums, so you need ₹50 lakh and ₹1 crore respectively.
Which has higher fees?
Management fees are similar, often around 2%. The difference is the profit share. AIF carried interest, especially with a catch-up clause, can cost far more than a typical PMS performance fee. Read how it is calculated, not just the percentage.
Can NRIs invest in both?
Yes. Neither set of rules bars you on residence. The AIF rules expressly allow non-residents, and the PMS rules say nothing about residence at all. The constraints are exchange control, the house's own policy, and your own country's tax. See the US, the UAE and the UK.
Is an AIF just a PMS with a bigger minimum?
No, and this is the most common misunderstanding. An AIF can hold things a PMS cannot: unlisted companies, private loans, leveraged positions. If a fund is doing nothing a managed account could do, the pooled structure is adding lock-in without adding access.
Which is more transparent?
A PMS, clearly. The holdings are in your own account. An AIF reports periodically, and private assets are valued by estimate until something actually sells.
New to either? Start with what a PMS is and what an AIF is.