There are a lot of approaches to invest in equities – direct investment in stocks, by means of Mutual Fund (MF), by means of Portfolio Management Service (PMS) and so forth. While direct investments contact for knowledge of the investors, investments by means of MF and PMS involve active fund management by qualified fund managers.
Direct investment
Even as an investor has complete manage on his/her investments if invested straight in stocks, it also have highest dangers unless the investor has ample understanding, knowledge, encounter, interest and time to monitor the markets, study the overall performance of businesses and financial scenarios to choose in which business to invest and when to sell the stocks.
Moreover, to minimize the danger by means of diversification, an investor requirements to invest more cash and allocate more time to pick more stocks.
Mutual Fund
Among the guided investment avenues of MF and PMS, MF is more preferred mainly because quite little amounts may well be invested and there are a wide decision of funds. An investor may well start out investing as low as Rs 1,000 periodically (some funds even let Rs 500) by means of systematic investment strategy (SIP).
Moreover, due to availability of wide decision of fund, investors may well pick funds as per their monetary ambitions and danger appetite.
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Apart from equity-oriented funds, Asset Management Companies (AMCs) also offer you debt-oriented funds and hybrid funds getting a mix of each equity and debt, which offer you additional diversification possibilities for the investors.
Portfolio Management Service
Compared to MF, PMSs offer you investors larger manage on decision of portfolio composition as the quantity of investors are significantly less and it may well be tailor created for huge investors.
Tighter regulatory manage on MF also tends to make it safer than the investments by means of PMS.
The minimum investment limit of Rs 50 lakh is also a deterrent for retail investors to invest in equities by means of PMS.
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“Mutual Funds work in a bit rigid framework by the nature of their mandate. They perform very closely to their benchmark allocations and remain invested throughout the investment period. PMS or Portfolio Management Services, on the other hand, offer a more flexible regime to investors. The instrument allows the fund managers to be more active in their fund management and reflect their views more accurately in the portfolios they build. Therefore, PMS fund managers can potentially generate greater alpha as compared to their mutual fund peers,” stated Nitin Rao, CEO, InCred Wealth.
“Nevertheless, it is observed that the performance of PMS Managers is not consistent. So, only a handful of them outperform their mutual fund counterparts. Hence, one must pick their funds and fund managers very wisely. Investors must identify the talent that can run structured strategies and investment models that beat mutual fund returns. In general, PMS products weigh above mutual funds conceptually for people who are able to allocate at least Rs 50 lakh in a scheme, which is the minimum. One has to carefully select the right PMS Manager(s),” he added.
So, for wealthy investors, investing by means of fantastic PMS Managers may well be a worthy decision, but for retail investors, MF is absolutely a improved decision.