New Portfolio Management Services (PMS) using mutual funds as underlying assets are gaining popularity among high-net-worth individuals. These services offer professional research and automatic rebalancing to simplify portfolio management, targeting investors who want to avoid the complexity of selecting from thousands of fund schemes.
The wealth management sector is seeing a rise in specialized Portfolio Management Services (PMS) that invest primarily through mutual funds and ETFs rather than concentrated direct stock holdings. This shift is designed for high-net-worth individuals (HNIs) who find the growing number of mutual fund schemes difficult to navigate. By moving away from direct equity-picking, these PMS providers aim to provide a more passive, professionally managed experience for busy entrepreneurs and executives.
How MF-Backed PMS Structures Work
Unlike traditional PMS, which often concentrates on a small basket of stocks, these new offerings function as an additional layer of professional oversight on top of existing mutual fund products. The portfolio manager handles the strategic asset allocation, fund selection, and rebalancing across various asset classes. By using direct plans of mutual funds and passive instruments like ETFs, managers look to reduce the complexity for the end investor. The service includes professional monitoring, which ensures that changes to the portfolio, such as rebalancing, are executed uniformly across all client accounts without requiring individual investor action.
Cost and Tax Considerations
Investors using these services typically face a dual-cost structure. There is the expense ratio of the underlying direct-plan mutual funds, which is often in the range of 40 to 60 basis points, plus a separate PMS management fee that typically hovers around 50 basis points. Providers often argue that this can be more cost-effective than investing in regular mutual fund plans through distributors. From a tax perspective, one key feature is that capital gains tax is only triggered when the PMS switches between different mutual fund schemes. Intra-fund trading, which happens inside the mutual fund itself, does not result in a direct tax event for the investor, potentially offering a more tax-efficient path for long-term compounding.
Regulatory and Investor Requirements
Because these services fall under the regulatory framework for Portfolio Management Services, they are subject to specific entry requirements, including a minimum investment amount. While some providers are lowering this threshold to ₹10 lakh to attract a broader base of affluent investors, these services are generally recommended for those with an investment horizon of at least five years. The strategy relies on disciplined asset allocation rather than attempting to outperform the market through high-risk stock bets.
Investors looking at these products should monitor the total cost of ownership—combining both the PMS management fee and the underlying fund expenses—and compare the track record of the portfolio manager against benchmark indices. As this niche grows, the ability of managers to maintain consistent performance through professional asset allocation, rather than just selecting top-performing funds, will remain the key factor for investors to track.