When it comes to investing, you have plenty of options, but the two most popular choices are – Alternative Investment Funds (AIF) and Portfolio Management Services (PMS). These two fields are generating higher returns and long-term profitability.
However, both fields have key structural, framework, and purpose differences.
So if you’re looking for the best investment option and are stuck between AIF vs PMS, this guide will be helpful.
In this guide, we will understand the key difference between AIF vs PMS so that you can pick a suitable investment option for higher returns.
Let’s dive in!
Alternative Investment Funds (AIFs)
The Alternative Investment Fund (AIF) is a private pool of investment funds that invest in various assets under SEBI regulations, 2021. There are various assets where investments are made, such as private equity, venture capital, hedge funds, real estate, commodities, etc. It’s a great investment option, providing higher returns than any traditional investment because of the high risks.
AIF investment diversifies the money in various sectors to ensure manageable risk, diversified portfolio, and higher returns.
However, AIF investment is specifically designed for high-net-worth individuals and organizations because only a high investment is required, such as a minimum of 1+ crore rupees, to invest in the AIF market. This field requires high investment, risk, and returns, but your investments need more transparency.
Portfolio Management Scheme (PMS)
Portfolio Management Scheme (PMS) refers to an investment service where financial institutions and portfolio managers manage high-net-worth Individuals and institutions’ portfolios and invest accordingly to market conditions.
In PMS, various formats of investments are made, like stocks, bonds, commodities, and other securities.
It’s a scheme for investors where they can create a customized investment plan that includes goals, risks, and investment options. Then the portfolio manager will handle the investor’s portfolio and use the expertise to invest for higher returns and long-term capital appreciation. In return, portfolio managers charge a small percentage of the total fees to provide portfolio management services.
Find Out: Are AIF Investors Taxed in India?
What are the Key Difference Between AIF vs PMS
AIF vs PMS: Here’s the key difference between the two. Let’s find out!
|Regulations||AIF is regulated under the provisions of Security and Exchange Board of India (SEBI) as per Alternative Investment Funds Regulations, 2012.||PMS is regulated under the regulation of SEBI (Portfolio Managers Regulations, 1993).|
|Investment Required||To start investing in Alternative Investment Funds, the minimum capital required is Rs. 1 crore.||PMS minimum investment amount is around Rs. 25 Lakh and in some cases, it requires Rs. 50 lakh minimum.|
|No. of Investors||According to Security and Exchange Board of India (SEBI) regulations, the maximum number of investors in AIF schemes is limited to 1,000.||In PMS investment, there’s no cap limit on the number of investors to invest.|
|Tenure||In AIF Investments, the category 1 and 2 AIFs take minimum 3 years and 5 years respectively. And to invest in AIF category 3 then there’s no minimum tenure.||There’s no minimum time defined for PMS investment.|
|Liquidity||AIF investment has low liquidity option because it has lock-in period as well as exit loads.||PMS minimum investment comes with low to medium liquidity based on the stocks investors hold.|
|Lock-in Period||Some close-ended units have pre-defined lock-in periods.||There’s no lock-in period in PMS investment, so it’s easy to withdraw their funds anytime.|
|Customization||AIF has a low to moderate degree of customization.||PMS has a high degree of customization.|
|Investment Objective||AIF comes with Higher-returns, capital appreciation and portfolio diversification.||PMS gives higher-returns.|
|Assets||Some main assets that comes under AIF i.e., Startups, early-stage, ventures, hedge funds, real-estate, private equity and PIPE funds||Some PMS assets that come under stocks, bonds, real estate and much more.|
|Investor Eligibility||Sophisticated investors and high net worth individuals are mainly considering AIF investment options.||Mainly HNIs and Institutional investors are mainly preferred for PMS investment.|
|Risk||AIF is a high-risk non-traditional investment option that requires high capital.||PMS is less risky as compared to AIF but it’s more risky than mutual funds.|
|Registration||AIF registration is valid for all the time until it’s closed.||PMS is mainly valid for 3 years and it’s renewed within the next 3 months before the expiry date.|
|Fees||When an investor wants to invest in AIF then there is a registration fee required depending on the type of AIF category.|
Category I – Rs. 5,00,000Category II – Rs. 10,00,000Category III – Rs. 15,00,000
|PMS investment comes with a non-refundable application fee i.e, Rs. 1,00,000 for a registration and Rs. 10,00,000 after registration certificate issued.|
|Minimum Corpus||The minimum Corpus amount required for investing in AIF is around Rs. 1 crore.||There’s no corpus amount required while investing in PMS.|
|Types||AIF is categorized in Category I, Category II and Category III.||PMS has three basic types – Discretionary, Non-Discretionary and Advisory.|
|Taxation||AIF Category I and II are considered for tax exemption. On the other hand, AIF Category III will be taxed at the investment fund level.||In PMS Equity, short-term capital is taxed at 15% and long-term capital gains taxed at 10%.|
|Segregation of Funds||AIF funds do not require segregation of clients funds.||PMS required segregation of funds for each client but there’s no pooling of funds in PMS like AIFs.|
Here’s the key difference between AIF vs PMS!
Check out: Best Alternative to Mutual Funds
What are the Benefits of AIF Over Mutual Funds?
AIF provides higher returns as compared to traditional investment options like mutual funds. However, it comes with potential risk but generates higher returns.
Is AIF Tax-Free?
Alternative Investment Fund (AIF) is exempt from all tax obligations on investment income. However, business Income is excluded from tax under AIF categories I and II.
Who Should Invest in AIF?
Most high-net-worth Individuals, NRIs, and foreign nationals can invest in AIF. Its starting investment is Rs. 1 crore for investors, but directors, managers, and employees can start with Rs. 25 lakhs with a minimum lock-in period of three years.
Who regulates PMS in India?
The Securities and Exchange Board of India (SEBI) regulates the PMS and sets guidelines for PMS providers and operations in the country. The minimum investment capital required is Rs. 50 Lakhs for individuals.
Why Invest in PMS?
PMS is a great alternative investment option as compared to traditional investment options. It allows investors to choose the assets to invest in to manage risk and get higher returns.
As we conclude our journey through the realms of AIF vs PMS, it becomes evident that both options are far superior compared to traditional investmentsBoth can generate higher returns and manageable risk. It just depends on the investor to match with eligibility. Both options required a minimum capital of Rs. 50 lakhs as an investment option.
However, if you still need to get this budget but still want higher returns on your investments, then contact SustVest and get some best investment options that are different from traditional investments and bring you higher returns and long-term profitability.
So, if you’re eager to unlock the full potential of your investments and achieve remarkable growth, reach out to SustVest today.
We hope this article helps you to know the exact difference between AIF vs PMS, the key differences between AIF vs PMS, and which is the best investment option.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.