Mutual Funds
comparison
PMS
AIF
Equity MF vs PMS vs AIF: comparative analysis
Equity Mutual Fund, Portfolio Management Services (PMS), and Alternative Investment Fund (AIF) are the three principal tiers of Indian pooled-equity investment vehicles. They are distinguished by:
- Minimum investment threshold.
- Strategy flexibility.
- Regulatory framework.
- Target investor profile.
The recent introduction of Specialised Investment Funds (SIF) adds a fourth tier sitting between MF and PMS.
For Indian investors, the choice depends on investment size, sophistication, and the type of strategy desired.
Quick comparison
| Dimension | Equity MF | SIF | PMS | AIF |
|---|---|---|---|---|
| Regulator | SEBI (MF Regulations) | SEBI (MF Regulations) | SEBI (PMS Regulations) | SEBI (AIF Regulations) |
| Minimum investment | Rs 500 to 5,000 | Rs 10 lakh | Rs 50 lakh | Rs 1 crore |
| Investor count | Lakhs per scheme | Sophisticated retail | HNI individuals | HNI / institutional |
| Strategy flexibility | Restricted | Mid | High | Very high |
| Long-short permitted | No | Yes | Yes | Yes |
| Derivatives heavy | Hedging only | Yes (limited) | Yes | Yes |
| Underlying ownership | Pooled (units) | Pooled (units) | Separate account | Pooled (units) |
| TER caps | Yes (low) | Yes (mid) | Negotiable | Varies |
| Disclosure | High (factsheets monthly) | High | Quarterly to client | Quarterly |
Equity Mutual Fund (MF)
Structure
- Pooled investment vehicle.
- Investors own units in a single scheme.
- All investors share the same underlying portfolio.
- Daily NAV computation.
Strategy
- Per SEBI October 2017 categorisation , each scheme operates in a defined category.
- Concentration limits, sectoral caps, derivative restrictions apply.
- Cannot short stocks; cannot take undisclosed positions.
Cost
- TER capped per TER regulation slabs .
- Typical equity MF TER: 0.7 to 1.0% (direct) or 1.5 to 2.0% (regular).
Tax
- Equity-oriented (>65% equity): Section 112A / 111A framework.
- LTCG 12.5% above Rs 1.25 lakh; STCG 20%.
Suitable for
- Retail investors with any investment size.
- Investors wanting standard equity exposure.
Specialised Investment Fund (SIF)
Structure
Recently introduced (effective 2024-2025); see Specialised Investment Funds .
Strategy
- Within MF regulatory framework but with expanded permissions.
- Long-short equity (Long-Short Equity Fund SIF ).
- Greater derivative use.
- Mid-tier between MF restrictions and PMS flexibility.
Cost
- Higher than conventional MF (1.5 to 2.5%).
- Lower than PMS.
Tax
- Equity-oriented if >65% net equity: Section 112A / 111A.
- Otherwise: slab rate per debt-MF framework.
Suitable for
- Sophisticated retail investors with Rs 10 lakh+.
- Sub-PMS-scale investors wanting flexible strategies.
Portfolio Management Services (PMS)
Structure
- Separate account per investor (not pooled).
- Investor’s stocks held directly in their demat account.
- Portfolio manager has discretion to execute trades on investor’s behalf.
- No NAV (since separate accounts); periodic valuation reports.
Strategy
- High flexibility.
- Long, short, derivatives, alternative strategies.
- Concentrated portfolios (5 to 25 stocks typical).
- Sector or theme concentration permitted.
Cost
- Negotiable fee structure.
- Common: 1.5 to 2.0% fixed fee + 15 to 20% performance fee above hurdle rate.
- Higher than MF but justifies for sophisticated strategies.
Tax
- Investor pays tax on each stock’s individual capital gain.
- More complex tax computation than MF.
- LTCG (>12 months) at 12.5% per Section 112A .
- STCG (≤12 months) at 20% per Section 111A .
Suitable for
- HNI investors with Rs 50 lakh+ to deploy.
- Investors wanting customised portfolio.
- Investors comfortable with manager discretion.
Alternative Investment Fund (AIF)
Structure
- Pooled investment fund.
- Three categories: I (venture, social, infrastructure), II (private equity, debt), III (hedge funds, public-equity strategies).
Strategy
- Highest flexibility.
- Long-short, derivatives, leverage, alternative assets.
- Multi-year lock-in typical.
- Closed-ended structures common.
Cost
- 2 to 3% management fee + 20%+ performance fee typical.
- Setup costs and exit loads.
Tax
- Category III AIF: gains pass through to investor or taxed at fund level.
- Complex tax treatment varying by category.
- Often less tax-efficient than MF for similar strategies.
Suitable for
- Institutional investors.
- HNI investors with Rs 1 crore+.
- Investors wanting alternative-asset exposure (private equity, hedge funds).
Decision framework
Investment size
| Range | Vehicle |
|---|---|
| Up to Rs 10 lakh | MF |
| Rs 10 to 50 lakh | MF (still) or SIF |
| Rs 50 lakh to 1 crore | MF / SIF / PMS |
| Rs 1 crore+ | All available |
Strategy preference
| Strategy | Vehicle |
|---|---|
| Standard equity exposure | MF |
| Long-short equity | SIF or PMS |
| Concentrated active | PMS |
| Hedge fund / alternative | AIF |
Investor profile
| Profile | Vehicle |
|---|---|
| Retail | MF |
| Sophisticated retail | MF or SIF |
| HNI | PMS or AIF |
| Institutional | AIF |
See also
- Mutual funds in India
- Specialised Investment Funds (SIF)
- Long-Short equity fund (SIF)
- PMS vs MF
- SEBI October 2017 categorisation
- Section 112A
- Section 111A
- Total Expense Ratio (TER)
- TER regulation and slabs
- Equity mutual fund taxation in India
- SEBI
- AMFI
External references
References
- SEBI (Mutual Funds) Regulations 1996.
- SEBI (Portfolio Managers) Regulations 2020.
- SEBI (Alternative Investment Funds) Regulations 2012.
- SEBI master circular on SIF framework (2024).