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Alternative Investment Funds (AIFs) are simply pooled investment vehicles in which investors can invest in a diverse range of assets other than traditional and mainstream investment instruments like mutual funds, and stocks. AIFs are managed by professional fund managers and regulated by authorities such as the Securities and Exchange Board of India. On the other hand, Portfolio Management Services (PMS) are personalized forms of investment where professional managers customize the investment portfolios according to individual investors’ financial objectives and risk appetites. What are the key differences between them, we’ll explore them in this blog.
What are Alternative Investment Funds (AIFs) in India?
AIFs are collective investment vehicles that go beyond traditional investment options. These funds have different structures in categories (Category I, II, and III), each characterized by unique investment strategies, risk profiles, and leverage usage. They encompass a wide range of investments like private equity, hedge funds, venture capital, real estate, and commodities, catering to investors who want diversified portfolios beyond traditional assets.
Wondering to learn about the criteria for taxation in AIFs? Click here to read.
What are Portfolio Management Services (PMS)?
PMS is a type of personalized investment strategy, undertaken by professional portfolio managers who cater to the investor’s own goals, risk appetite, and even personal preferences. Unlike AIFs, PMS operates on a flexible basis, offering investors direct ownership over the securities in their portfolios. They offer more customized experience based on each client’s financial goals and risk tolerance.
Let’s have a look at the key differentiators between AIFs and PMS:
| Key Differences | AIFs | PMS |
| Regulatory Framework | Governed by SEBI with stricter regulations, providing a higher level of oversight. | Subject to SEBI regulations but generally less strict, offering relatively more flexibility. |
| Investor Eligibility and Minimum Investment Requirement | Primarily available to institutional/sophisticated investors and high-net-worth individuals. | Largely to retail investors with lower minimum investment requirements. |
| Risk and Returns Assessment | Involves higher risks, particularly in Category III, which may offer higher returns accompanied by increased volatility. | Tailored to individual risk profiles, aiming for stable returns that align with clients’ risk appetites. |
| Investment Approach | A broader range of investments, including private equity, real estate, and commodities. | Mainly focused on equities, with potential limitations on the types of securities. |
| Control and Transparency | Limited access to investors over managerial decisions. | Comparatively more control to clients in portfolio management decisions, along with more frequent updates and reports. |
Final Thoughts
Learning the comparisons between AIFs and PMS funds allows investors to make informed decisions that can fit their risks, and investment goals, and to get control of their portfolios. This above-mentioned breakdown can provide a clear and concise explanation between AIFs and PMS Funds. This can help potential investors to grasp the essential knowledge between the two verticals.
