Mutual Fund Investments vs. Portfolio Management Services: Which Is Right for You?

When it comes to High Net Worth Individuals (HNIs), the decision between mutual fund investments and portfolio management services is not only about returns. It is also about the compatibility with the long-term financial objectives, the level of risk-taking, and the need to feel that the services are personalised.

Both investment opportunities have distinct advantages, though they vary significantly regarding management approach, minimum investment, and flexibility. These differences can guide you in making the right choice regarding the method to take.

What Are the Benefits of Mutual Fund Investments?

One of the most common forms of investments in India is mutual funds. They combine funds of several investors and invest in a diversified portfolio of equities, debt, or hybrid securities. The model enables HNIs to enter markets characterised by comparatively low entry and enjoy the advantage of professional management. Some of the most important benefits are:

●       Accessibility: Mutual funds have lower minimums to invest, and thus are more accessible.

●       Diversification: Mutual funds diversify across numerous securities, lessening the effect of their individual stock performances.

●       Liquidity: They make entry and exit easy, which is attractive for investors who desire convenience.

Since mutual funds are standardised, though, investors do not have much control over how portfolios are created. For HNIs who prefer greater control, this is limiting.

How Portfolio Management Services Function

Portfolio management services (PMS) are very customised investment products for high-net-worth investors. Unlike mutual funds, PMS emphasises the customisation of portfolios according to the financial goals, risk tolerance, and horizon of an individual. Portfolio management services usually are discretionary (where the portfolio manager makes decisions) or advisory (where suggestions are made, and the investor makes decisions). Advantages of PMS include:

●       Personalisation: Portfolios are created around your own objectives and wealth protection strategies.

●       Transparency: Investors can look directly at what securities they hold, as opposed to mutual funds, where units own cumulative holdings.

●       Active Management: Portfolio managers are able to make quick changes in strategy as a response to the market, providing flexibility that is not always available from mutual funds.

The downside is the greater minimum investment level, typically ₹50 lakh in India, and that makes PMS more appropriate for HNIs.

Mutual Fund Investments vs. Portfolio Management Services: Key Differences

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What Alternative Should HNIs Select?

When deciding between mutual funds and PMS, it all depends on your financial profile and your financial ambitions.

●       Mutual funds can be a good choice, especially in case you want affordable, diversified exposure and liquidity.

●       PMS might be the choice when individual strategies, proactive management, and wealth organisation are required according to your objectives.

A hybrid strategy may be best with many HNIs, where mutual funds are used to provide liquidity and diversification, whereas PMS is used to offer a personalised strategy and wealth protection over the long term.

Conclusion

Both portfolio management services and mutual fund investments have their rightful place in the portfolio of an HNI. This is because the correct decision will be based on your wealth goals, degree of engagement, and degree of customisation.

IIFL Capital Services Limited provides a great deal of expertise in both mutual funds and PMS to those who may require professional advice on how to put together a well-balanced approach. Their solutions will provide returns, as well as clarity, governance, and alignment with your long-term wealth objectives.