Are you looking to grow your money by investing in securities beyond mutual funds? Well, look no further than Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS). These high-risk instruments have recently gained immense popularity among sophisticated investors for wealth creation.
Let’s understand PMS and AIF in detail and the differences between them.
What are Portfolio Management Services?
PMS is a tailored investment portfolio in fixed income instruments, individual securities, equity, and structured products. It caters to the investment objectives of high-net-worth individuals with a minimum ticket size of Rs. 50 lakhs.
PMS offers professional management of your investments and can be discretionary or non-discretionary. In discretionary, the fund or PMS managers manage your portfolio by tracking the market and keeping your investment requirements in mind. Contrarily, in non-discretionary, investors can make the final decisions.
In PMS, you actively monitor your personalised portfolio to track developments and maximise returns. Since experienced portfolio managers handle your investments, all you need to do is review the transactions periodically and get performance updates. Besides, fund managers receive flexibility in selecting stocks, sectoral allocation, and maintaining cash position.
Here, your portfolio is usually concentrated and your stocks are more likely to generate alpha returns in the long run.
AIFs are pooled investments for investing in hedge funds, venture capital, futures, and private equity. Based on their investment strategies, AIFs, are classified into three categories.
Category I
These funds are invested in small businesses, start-ups, social ventures, early-stage ventures, angel funds, etc., with superior growth potential.
Category II
This category includes investments in Private Equity (PE) funds, fund of funds, and debt instruments.
Category III
This AIF aims at generating short-term returns by employing diverse and complex trading strategies. Category-III funds can include hedge funds and Private Investment in Public Equity (PIPE) Funds.
Pooling of funds is the essence of this kind of investment model.
Funds are not pooled, and investors have separate Demat accounts.
5. Number of Investors
The maximum number of investors to any AIF scheme cannot exceed 1,000
There is no cap specified on the number of investors
3.SEBI-mandated minimum investment amount
Rs. 1 crore
Rs. 50 lakhs
4. Minimum corpus
A minimum corpus of Rs. 20 crore is required. For Category-I angel funds, Rs. 10 crore is necessary.
No corpus amount requirements
6. Lock-in period
In close-ended AIF, investors must adhere to the lock-in period.
PMS investors can withdraw their funds at any time.
2. Types
AIFs are grouped into three – Category I, II, and III, depending on where the funds are invested.
PMS are of two types; discretionary and non-discretionary based on the authority of the fund manager.
7. Tenure
Category-I and II AIFs have a minimum tenure of 3 years and a maximum of 5 years. The minimum term is extended when two-thirds of investors by value approve it. Category-III funds have no minimum tenure.
No fixed tenure for securities.
8. Taxation
Two factors impact the taxation of an AIF: Classification of the fund into one of the 3 categories andLegal form of the fund. SEBI regulations permit an AIF to be set up in the form of a trust, or a company, or a limited liability partnership or a body corporate.
Equity PMS – Short term capital gains (before 1 yr) will be taxed at 15% and any long term capital gains will be taxed at 10% (after 1 lakh limit per financial year) without indexation benefits. Debt PMS – For listed securities, you have the benefit of long-term capital gains taxation, after 1 year, 1 day as compared to three years in debt mutual funds
To Conclude
While AIF gives the investor an avenue to pool in funds with the flexibility to invest in derivatives, listed & unlisted equity shares, real estate, hedge Fund, etc.; PMS permits the investor to actively monitor its personalised portfolio to track developments and maximise returns. Since both AIFs and PMS are high-risk, high-reward instruments, it is crucial to have an excellent management team.
If you wish to invest in PMS or AIFs, get exceptional financial guidance and leverage wealth management solutions from – Tata Capital Wealth. Nurture your wealth and become a sophisticated investor with us. Get in touch today!
29 June 2021
4 mins read
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