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Tata Capital > Blog > Wealth Services > Debt PMS VS Debt MF VS Bonds. Differences, Pros & Cons

Wealth Services

Debt PMS VS Debt MF VS Bonds. Differences, Pros & Cons

Debt PMS VS Debt MF VS Bonds. Differences, Pros & Cons

Whether you are an investment veteran or just starting on your investment journey, choosing whether to invest in portfolio management services, debt mutual funds, or bonds can be difficult.

This article will explore the differences between the three so that you can choose the best option to suit your investment needs.

What are portfolio management services?

A portfolio management service (PMS) is a customised investment option offering tailor-made investment solutions to fit an investor’s risk appetite and investment objectives.

What are debt mutual funds?

Debt mutual funds (debt MF) are a type of mutual fund which pools funds from several investors and offers returns on your investments. They invest money into debt instruments such as government securities, corporate bonds, state development bonds, etc

What are bonds?

Bonds are a fixed-income debt instrument where an individual lends money to a company or government at a certain interest rate for a fixed amount of time. The entity repays the lender the original amount along with the interest.

Difference between PMS and mutual fund and bonds

PMS, MFs, and bonds differ in various factors like risk levels, management, and customization:

FeaturePMSMutual fundsBonds
ManagementManaged by a portfolio managerManaged by a professional fund managerNo management
Risk levelLow to High depending upon the rating of the underlying portfolioLow to high depending upon the category that you invest inLow to High depending upon the rating of the bond
Customization by investorHighLimitedNIL
Investment horizonLong-termShort to long-termShort to long-term
Investor profileHigh-net-worth individuals (HNIs)All types of investors All types of investors
Minimum investment₹50 lakhs₹500₹1000 to ₹10,00,000

Pros and cons of Debt PMS vs mutual fund vs bonds

Which investment option should you choose? Consider the following pros and cons:

Mutual funds vs Debt PMS:

1. Income: The personalised investment strategies in a PMS can lead to higher returns, although they are subject to market fluctuations. Mutual funds are diversified across various securities and provide a steadier income.

2. Liquidity: Mutual funds are highly liquid and can be redeemed anytime, whereas a PMS exit may involve high exit fees or lock-ins.

3. Minimum investment: PMS have an incredibly high minimum investment amount of ₹50 lakhs, whereas ₹500 can be all you need to invest in a mutual fund.

4. Accessibility: Due to the high minimum investment, PMS are usually only accessible to high-net-worth individuals. In contrast, most people can invest in a mutual fund.

5. Risk level: PMS are a higher-risk investment than mutual funds. The portfolio manager may take aggressive bets on the securities. In contrast, debt mutual funds invest in fixed-income instruments with . relatively lesser risk than PMS.

6. Customisation: A PMS is perfectly tailored towards the investor’s goals. Mutual funds are managed collectively, so there is limited customisation.

Mutual funds vs bonds:

1. Income: Bonds are fixed-income instruments which pay monthly / Quarterly / Half Yearly / Annually interest (Cumulative option may also be available) to individuals who invest in them based on a fixed interest rate. On the other hand, mutual fund returns may vary based on the underlying asset’s market price. However, debt mutual funds can invest in fixed-income assets like bonds.

2. Liquidity: Mutual funds are highly liquid and allow you to withdraw your money anytime. (Taxes and exit load costs can apply). Bonds are less liquid than mutual funds. Their liquidity depends on their tenure or the bond market.

3. Fees: Mutual funds cost an additional fee as they are professionally managed. There are no such costs for bonds.

4. Accessibility: Mutual funds are accessible and easy to buy and sell. Bonds cannot be directly purchased, making them difficult for regular investors to invest in.

5. Risk level: Both debt mutual funds and bonds are good investment options for investors with low-high risk appetite depending upon the rating of the bond and the category of the Mutual funds

Wrapping up

Your investment objectives, financial situation, and risk appetite can all help you decide which investment option is best for you.

Begin your investment journey with Tata Capital Wealth’s expert financial guidance. To learn more, visit the Tata Capital Wealth website today!

Build Your Wealth with Expert Guidance from Tata Capital!

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