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What Is The Difference Between Mutual Fund And Portfolio Management?

Mr. C.S. Sudheer | Updated On Thursday, November 03,2016, 01:25 PM
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What Is The Difference Between Mutual Fund And Portfolio Management?

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”

                                                                                                                                             -  Ayn Rand

Yes….Growing rich is all about managing your money. This is the key to wealth. The wise investors of India, have realized this a long time ago. They want good returns from their investment. They invest in mutual funds, stocks and even avail portfolio management services, popularly called PMS Services.

Portfolio management is selecting the right investment, which has minimum risk, but gives you maximum returns. Portfolio management services (PMS), do the portfolio management for you. High Net Worth Individuals popularly called HNI’s, are rushing towards portfolio management services (PMS). Today, Mutual funds are facing stiff competition from portfolio management services. The strength of PMS services…..Portfolio Planning.

Now comes the tough part…Should you invest your hard earned money in mutual funds, or should you opt for portfolio management? The key to making this decision, is to understand the difference between mutual funds and portfolio management. Stop taking Financial Advice from Sellers! Speak to IndianMoney.com for Unbiased Advice on Loans, Tax, Insurance and Mutual Funds. Leave a Missed Call on 02261816111.

What is a mutual fund in India?

A mutual fund in India, collects and invests your and other investor’s money, in stocks, bonds or even a mix of stocks and bonds. The total investment made by the mutual fund, either in stocks, bonds or a mix of both, is divided into units. Depending on the cash you invest, you are given units of the mutual fund. The NAV (Net Asset Value), gives you the value of the mutual fund.

The mutual fund is managed by the fund manager. The fund manager decides which stocks, bonds or assets, the mutual fund must buy, depending on the type of mutual fund. Yes…the mutual fund manager invests your money for you. He makes the investment decisions on your behalf. Make sure your KYC status is updated, before making an investment in mutual funds.

What is portfolio management in India?

Portfolio management is simple…Select the right investment, which gives maximum return, but at minimum risk. PMS services, come under the alternate investments fund, category. It is a type of wealth management service/portfolio management process, offered to the rich and wealthy in India. HNI’s and the rich and wealthy in India, love portfolio management services (PMS), and use it to invest in stocks. PMS (Portfolio Management Services), also offer investments in fixed income securities (debt), but few investors opt for this service. PMS services are offered by brokerages and mutual funds, which have been registered with SEBI. The portfolio management process is aided by a portfolio software.

Fees charged by PMS Services: Portfolio Management Services (PMS), charge you an initial fee of 2-3% of your investment. Once you get profits from your investment, there is a profit sharing agreement. You (investor), would have to bring in at least INR 25 Lakhs, to be invested in the portfolio management services.

How does portfolio management work in India? You opt for a portfolio management service. A bank and a demat account, are opened separately in your name. The money you bring, is invested in your name. Shares are held in a demat account in your name. The income or dividend you get from your investment, is credited to your bank account. You sign a Portfolio Management Services agreement, where you give POA (Power of Attorney), to the portfolio manager. The portfolio manager gives you the performance report of your investments, as mandated by SEBI, every 6 months.

Portfolio management is of two types:

Discretionary portfolio management: The portfolio manager makes investment decisions, on your behalf. He has the power of attorney (POA), to manage your demat account.

Non discretionary portfolio management: You direct the portfolio manager, how to manage your money. The portfolio manager only suggests investment ideas. You make the investment decisions.

Difference Between Mutual Fund And Portfolio Management

  • If you are an investor in equity mutual funds, you get units, which represent stocks. In portfolio management, you (investor) hold stocks in your demat account. You own the stocks in your demat account, but the power of attorney, rests with the fund manager.
  • You can invest a few hundreds or thousands of rupees, in a mutual fund. You would have to bring in lakhs of rupees, to be invested in portfolio management services.
  • When you invest in mutual funds, you have expenses such as fund manager charges and even an exit load (charges when you exit the mutual fund). This amount is not very high. Portfolio management services, charge an initial fee and also have a profit sharing agreement. This is a high cost.
  • Portfolio management services are offered to HNI’s and the rich. Almost any citizen can invest in mutual funds.
  • Portfolio management services offer investment services, tailored to meet your financial goals. You might want to invest a lot of money, in a single stock. You can do so. In a mutual fund, the fund manager decides where your money is invested and how much is invested.

 

Investing wisely is all about sound financial planning. You decide where your money goes. If you earn a lot of money and do not invest and manage it, your money will soon disappear. This is just like leaving the reins of a horse. The horse goes where it wants. Avail financial advisory services, if you are not confident in handling money. Be Wise, Get Rich.

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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