A mutual fund is a restaurant. One menu, cooked for hundreds of tables. A PMS is a personal chef: your kitchen, your plate, your menu.
What is a PMS?
A managed account. A SEBI-registered manager buys and sells shares directly in your own demat account.
You do not hold units of a pool. You hold the shares themselves, in your name.
That is a rule, not a sales line. Under Regulation 24(15), a portfolio manager must not hold your securities in its own name. Open your demat any morning and count them.
Three kinds exist. Discretionary, where the manager decides and acts. Non-discretionary, where they suggest and you approve. Advisory, where they only advise. Almost all PMS money in India is discretionary.
How is it different from a mutual fund?
| Mutual fund | PMS | |
|---|---|---|
| You own | Units of a pool | The shares, in your demat |
| Minimum | A few hundred rupees | ₹50 lakh |
| Holdings | 50 to 80 stocks | 15 to 30 stocks |
| You can see | A monthly factsheet | Every share, any day |
| Tax on churn | Paid inside the fund | Paid by you, every year |
Fewer stocks, each one bigger. That is where the extra return can come from. It is also where the extra fall comes from.
What does a PMS cost?
Fees are commercial, not regulated. Two shapes are common:
- Flat fee only. Usually 2 to 2.5% a year.
- Flat plus profit share. A lower fixed fee, plus a cut of gains above a hurdle.
GST applies to both. So do brokerage, custody and audit costs.
Most people assume the profit-share option is the cheaper one. Run the numbers.
On ₹50 lakh, for one year.
Flat 2.5%: you pay ₹1,25,000. Good year or bad.
1.5% plus 15% above a 10% hurdle: at an 18% return, your gain is ₹9,00,000. The hurdle takes the first ₹5,00,000. Of the remaining ₹4,00,000, the manager takes 15%, or ₹60,000. Add the ₹75,000 fixed fee. You pay ₹1,35,000.
The crossover is around 16.7%. Below that, the profit-share is cheaper. Above it, the flat fee is.
So a profit share does not mean you only pay when things go well. It means you pay less in bad years and more in very good ones.
Three questions to ask before you sign:
- What is the hurdle?
- Is there a high-water mark, so you are not charged twice for recovering the same loss?
- Is the profit share charged on gains booked, or gains on paper?
How is a PMS taxed?
The shares are yours. So every sale the manager makes is your sale, in your return, that year.
On listed equity where STT has been paid:
- Held under a year: 20%
- Held over a year: 12.5%, with the first ₹1.25 lakh of gains exempt each year
Here is what people miss. A manager who trades a lot hands you a tax bill every year, even if you withdraw nothing. Two managers can report the same gross return and leave you with very different money.
So ask for portfolio turnover alongside performance. The second number tells you how much of the first you keep. Our tax schedule has the rates for every structure.
Who is a PMS for?
SEBI sets the floor at ₹50 lakh (Regulation 23(2)). Accredited investors are exempt.
Beyond the cheque, three things should be true:
- You will not need this money for three to five years.
- You can watch it fall 30 or 40% without selling. At some point it will.
- You accept that picking the manager is the whole decision. The gap between the best and worst in the same category is far wider than in mutual funds.
If any of those feels shaky, that is useful to know. Our Fit Finder takes 90 seconds and will tell you when the answer is "not yet".
What can go wrong?
- Concentration cuts both ways. The sizing that wins big also loses big.
- Key-person risk. You are buying one manager's judgement. They can leave.
- Churn drag. Turnover you never see turns gross returns into a smaller net number.
- Hard to compare. There is no single daily NAV, and houses present records differently.
- Exit means selling. At whatever price the market offers that week.
Questions people ask
Is ₹50 lakh per PMS, or across all of them?
Per manager. Split money across two houses and each needs its own ₹50 lakh.
Can NRIs invest in a PMS?
Yes. The SEBI rules contain no residency condition at all. What actually decides it is exchange control, your bank accounts, and each house's own policy. Where you pay tax changes the answer a lot, so start with your corridor: United States, UAE or United Kingdom.
Can I control what gets bought?
You can always see it, because it sits in your demat. Whether you control it depends on the mandate. Discretionary means the manager acts without asking you each time.
Is a PMS better than a mutual fund?
No. It is a different tool. A mutual fund gives you diversification and daily liquidity, cheaply. A PMS gives you concentration and direct ownership, at a higher price and a higher minimum. If you cannot say why you want concentration, the mutual fund is the better answer.
How fast can I get out?
Most equity mandates have no lock-in, and money usually reaches you within days of the shares being sold. Some strategies charge an exit load early on. Read the agreement.
Wondering whether you want a managed account at all, or a pooled fund that can reach places the stock market cannot? That is what PMS versus AIF is about.