PMS vs AIF at a glance
| PMS | AIF | |
|---|---|---|
| Minimum investment | ₹50 lakh | ₹1 crore (lower for accredited investors) |
| Regulator | SEBI (Portfolio Managers) Regulations, 2020 | SEBI (Alternative Investment Funds) Regulations, 2012 |
| Structure | Your own portfolio, held in your own demat account | Pooled fund, usually a trust; you hold units |
| What it can invest in | Mostly listed equity and debt | Unlisted companies, private credit, real estate, venture capital, long-short strategies and more |
| Liquidity | Can usually exit any time (exit load may apply) | Category I and II are close-ended with lock-ins of several years; Category III can be open-ended |
| Taxation | Each trade is taxed in your hands | Category I and II are pass-through; Category III is taxed at the fund level |
| Transparency | You see every holding and transaction | Periodic reports at fund level |
What is a PMS?
A Portfolio Management Service is a professionally managed portfolio built in your own name. The shares and bonds sit in a demat account opened for you, so you can see every holding and every trade. SEBI sets the minimum at ₹50 lakh, which you can bring in as cash, as existing securities or as a mix of both.
There are three types:
- Discretionary PMS. The manager decides what to buy and sell. This is by far the most common.
- Non-discretionary PMS. The manager recommends and executes, but only with your approval on each trade.
- Advisory PMS. The manager advises and you execute yourself.
Most PMS strategies are concentrated equity portfolios of 15 to 30 stocks. That concentration is the point: it is how a manager can meaningfully beat an index. It also means returns can swing far more than a diversified mutual fund in both directions.
Worth knowing: since 2023 SEBI requires portfolio managers to report performance on a standard time-weighted basis against a common set of benchmarks. That makes it much easier to compare one PMS with another on equal terms. We use these numbers, not marketing brochures, when we shortlist managers.
What is an AIF?
An Alternative Investment Fund pools money from a small number of sophisticated investors to invest in assets that ordinary funds cannot easily hold. The minimum is ₹1 crore per investor (accredited investors can go lower in some schemes). SEBI groups AIFs into three categories:
- Category I. Venture capital, angel funds, SME funds, social impact and infrastructure funds. Early-stage and long-horizon.
- Category II. Private equity, private credit, real estate and pre-IPO funds. This is where most HNI money in AIFs goes.
- Category III. Strategies that trade listed markets with more freedom than a mutual fund, such as long-short equity and arbitrage, sometimes with limited leverage.
Category I and II funds are usually close-ended. You commit an amount, the manager draws it down over time as they find deals and you get money back as investments are exited. A typical life is five to eight years. Plan for that money to be locked in.
How PMS and AIF are taxed
Tax is often the deciding factor for HNIs, and it is where the two differ most.
PMS: because you own the securities directly, every sale by the manager is a taxable event for you. Listed equity held over 12 months attracts long-term capital gains tax (currently 12.5% above the annual exemption), and gains on holdings under 12 months are taxed as short-term (currently 20%). A high-turnover strategy can therefore create a steady stream of short-term gains in your name.
Category I and II AIF: these are "pass-through" for most income. The fund itself does not pay tax on capital gains; the gains flow to you and are taxed as if you had earned them directly, typically when the fund distributes them.
Category III AIF: taxed at the fund level, usually at the maximum marginal rate. What you receive is post-tax, with no further tax in your hands. For investors already in the top bracket, the outcome can be broadly similar; for others it can be costlier.
Tax rules change with almost every Union Budget. The rates above reflect the position for FY 2025-26. Always confirm your own position with your chartered accountant before investing.
Fees and costs
Both products charge more than a mutual fund, so it pays to read the fee schedule closely.
- PMS usually charges either a fixed fee (often 1.5% to 2.5% a year) or a lower fixed fee plus a share of profits above a hurdle. SEBI requires performance fees to be charged only above a high-water mark, so you do not pay twice for the same gains.
- AIFs typically charge a management fee of 1.5% to 2% a year plus "carry", a share of profits (commonly 10% to 20%) above a hurdle return. Some funds also charge setup costs.
The right question is not "which is cheaper?" but "what return am I left with after fees and tax, and for what level of risk?"
How to choose between PMS and AIF
A PMS tends to suit you if you want:
- A concentrated, actively managed listed equity portfolio
- Full visibility of every holding
- The ability to exit when you choose
- To transfer existing shares in rather than selling them first
An AIF tends to suit you if you want:
- Exposure to private markets: unlisted companies, private credit or real estate
- Returns that move differently from the stock market
- To put aside capital you will not need for five years or more
For most of our HNI and UHNI clients the answer is not one or the other. A well-built portfolio often holds a core in mutual funds, a satellite of one or two carefully chosen PMS strategies and a measured allocation to AIFs for private-market exposure. The mix depends on your liquidity needs, tax bracket and how much volatility you can live with.
If you already hold several PMS or AIF investments, a portfolio review is the best place to start. We often find overlapping stocks across managers, which means paying multiple fees for the same exposure.
Frequently asked questions
What is the minimum investment for PMS in India?
SEBI sets the minimum investment for a Portfolio Management Service at ₹50 lakh. You can invest it as cash, as existing securities or a combination of both.
What is the minimum investment for an AIF in India?
The minimum investment in an Alternative Investment Fund is ₹1 crore per investor. Accredited investors may be allowed to invest less in certain schemes.
Is PMS better than AIF?
Neither is better in general. A PMS suits investors who want a transparent, concentrated listed equity portfolio they can exit at any time. An AIF suits investors who want private-market exposure and can lock in money for several years. Many HNIs use both.
Can I exit an AIF early?
Category I and II AIFs are usually close-ended, so early exit is generally not possible except through a secondary sale, which is not guaranteed. Category III AIFs can be open-ended and may allow periodic redemptions.
How is PMS taxed in India?
In a PMS you own the securities directly, so each sale is taxed in your hands as short-term or long-term capital gains depending on how long the security was held.
This guide is for general information only and is not investment, tax or legal advice. Investments are subject to market risk. Please read all scheme documents carefully and consult your own tax and legal advisers.