PMS vs Mutual Funds (2026): Best Choice for Indians?

Imagine an investor who has spent a few years running steady SIPs in equity mutual funds. The portfolio is now worth a few lakhs, maybe even crores, and a relationship manager starts pitching PMS as the natural “next step”. The big question appears right away: PMS vs Mutual Funds: Which Is Better for Indian Investors?

Both products are professionally managed and regulated by SEBI, yet they work in very different ways. Mutual funds are pooled, low-ticket, and widely diversified. Portfolio Management Services (PMS) are concentrated, higher-ticket accounts where every stock sits directly in the investor’s Demat account. These are not minor cosmetic differences; they can change long-term wealth outcomes.

In this article, we break down the real gap between PMS and mutual funds in 2026. We compare:

Minimum investment
Fee structures after the Base Expense Ratio (BER) change
Tax treatment
Ownership style and transparency
Risk and concentration
Liquidity and ease of exit

By the end, you should be able to see which side you stand on, based on your own capital and risk comfort, not just on marketing pitches.

At StocksInfo.AI, we specialise in turning such choices into clear, step-by-step comparisons. Using practical examples and research-backed insights, we help investors decide whether to stick with mutual funds, consider PMS, or use both in the right proportion.

Table of Contents

Key Takeaways

Accessibility: Mutual funds stay open to almost everyone, with SIPs starting from just a few hundred rupees. PMS, with a SEBI-mandated minimum of ₹50 lakhs, is aimed at High-Net-Worth Individuals. These rules alone show that the two products are built for very different investor segments.
Ownership And Control: Mutual funds pool investor money; you own units of that pool. PMS invests directly in your Demat account, so you own every stock in your name. Mutual funds focus on broad diversification and standard portfolios, while PMS leans on more customised, concentrated portfolios with real-time visibility of trades.
Tax And Fees: Mutual funds allow tax-deferred compounding because tax usually applies when you sell units. PMS triggers capital gains tax on almost every profitable trade, and fees tend to be higher and more layered. Once you factor in BER, PMS fee structures, and your time horizon, the “better” choice depends on corpus size, risk appetite, and goals—not a one-word verdict.

What Are Mutual Funds And PMS? A Quick Primer

Before comparing PMS vs mutual funds, it helps to be very clear about how each one works.

A mutual fund is a pooled investment product. Many investors put money into a common pool, and a professional fund manager invests that pool in:

Stocks
Bonds
Hybrid or asset allocation strategies

Each investor receives “units” of the fund, and the value per unit is the Net Asset Value (NAV). Mutual funds are tightly regulated by SEBI, with rules around diversification, disclosures, and investor protection.

Why are mutual funds so popular in India?

Very low starting amount: lump sums often from around ₹5,000 and SIPs from ₹100–₹500 (depending on scheme)
Professional research and stock selection are handled by the fund house
Easy tracking through NAV and periodic factsheets

The investor’s main task is to pick the right category and fund, and then stay disciplined.

A Portfolio Management Service (PMS) works differently. Here, a portfolio manager and research team run a basket of securities in the client’s own Demat account. You do not hold units of a pool; you hold each stock directly in your name. This offers:

Full visibility of every holding
Trade-by-trade tracking in your Demat or broker app
Scope for more specific strategies

Because of the more involved structure, PMS has an SEBI minimum of ₹50 lakhs per investor per PMS provider.

There are two main PMS styles:

Discretionary PMS: The manager has full freedom to buy and sell within an agreed strategy, without seeking approval for each trade.
Non-Discretionary PMS: The manager suggests trades, but the investor must approve every order before execution.

Both are regulated by SEBI, but the investor’s involvement is much higher than with mutual funds. In short:

Mutual funds = shared ownership of a pool through units
PMS = direct ownership of a basket of stocks or other securities

This ownership detail drives how fees, taxes, risk, and transparency show up in real life.

Check out Is PMS a Good Investment in India?

PMS Vs Mutual Funds: The Key Differences That Matter In 2026

Once the basics are clear, the next step is to see where PMS and mutual funds truly diverge. In 2026, the gap shows up across entry ticket size, structure, cost, and day-to-day experience.

1. Minimum Investment

Mutual Funds: Welcome small and medium investors. SIPs can begin at a few hundred rupees, and lump sums are usually allowed from around ₹5,000.
PMS: SEBI has set a strict floor of ₹50 lakhs, which keeps PMS in High-Net-Worth territory. Anyone below that threshold cannot formally access PMS.

2. Ownership Structure

Mutual Funds: Investors own units of a pooled portfolio, not the underlying stocks. You cannot pick or remove a single stock inside a scheme.
PMS: Each stock sits in your personal Demat. Every buy or sell decision taken by the manager appears as an individual trade in your account.

This is a big psychological and practical difference. Many advanced investors like seeing each stock in their Demat instead of only seeing fund units.

3. Customisation

Mutual Funds: Standardised portfolios. Every investor in a given scheme holds the same basket in the same proportion. You cannot avoid a sector or stock inside a chosen fund.
PMS: Portfolios can be more aligned to a client’s goals, risk comfort, and preferences (for example, avoiding tobacco or certain commodities), within the strategy’s mandate.

4. Risk And Concentration

Mutual Funds: SEBI rules limit exposure to a single stock, and most equity schemes hold dozens of stocks. This wide spread cuts single-stock risk but can reduce the chance of extreme outperformance.
PMS: Managers often run concentrated portfolios of 15–20 high-conviction stocks. This can boost upside in good markets, but also leads to deeper drawdowns if a few big bets go wrong.

5. Fees And BER Vs PMS Structures

The fee picture changed for mutual funds with the move from Total Expense Ratio (TER) to Base Expense Ratio (BER).

Mutual Funds:
- BER reflects the pure fund management cost.
- Taxes and statutory charges such as GST and STT sit outside the BER and are charged on actuals.
- For many active equity funds, BER tends to fall roughly in the 0.90–1.80% band (varies by category and size).
PMS:
- Often combine a fixed annual management fee of about 1–2.5% with a performance fee of around 10–20% on returns above a hurdle rate.
- These layered fees mean the manager has to beat the market by a fair margin for the investor to come out ahead after costs.

6. Liquidity And Exit

Mutual Funds: Open-ended schemes allow redemptions on any business day at the day’s NAV. There may be exit loads for short holding periods, but operationally, liquidity is high.
PMS: Portfolios hold individual stocks, so liquidity depends on both the PMS agreement and stock liquidity. Some PMS agreements may include lock-in periods or exit fees, and selling a large or illiquid position can take more time.

7. Transparency

Mutual Funds: You see daily NAVs and periodic portfolio disclosure (monthly or quarterly factsheets). This is enough for most investors, but you cannot see every trade as it happens.
PMS: Every stock and every trade appears in your Demat or broker app. This creates a very “live” feel and can be appealing to investors who like detailed tracking.

To summarise the key points:

Parameter	Mutual Funds	PMS
Minimum Investment	SIPs from about ₹100–₹500; low lump sum thresholds	SEBI minimum of ₹50 lakhs
What You Own	Units of a common pool	Direct stocks in personal Demat
Customisation	Standardised portfolio for all investors	Portfolio shaped around client profile and choices
Number Of Holdings	Usually widely diversified	Often 15–20 higher-conviction stocks
Fee Style	BER-based percentage cost	Fixed fee plus performance-linked fee
Liquidity	High for open-ended schemes	Depends on PMS contract and stock liquidity
Transparency	NAV and periodic factsheets	Real-time holdings visible in Demat

These building blocks set the stage for the most overlooked difference: how tax applies under each structure.

Check out Should I Invest in Silver ETF Now for Long Term

The Taxation Trap Most Investors Overlook

Tax rules may feel dull, but they have a direct impact on how fast money can grow.

In 2026, equity investments in India face:

Short-Term Capital Gains (STCG): 20% on holdings of one year or less
Long-Term Capital Gains (LTCG): 12.5% on holdings above one year, with a ₹1.25 lakh annual exemption on total long-term gains

Mutual funds work in a tax-friendly way for long-term investors:

The fund manager can buy, sell, and rebalance every day inside the fund.
These internal trades do not create a tax bill for individual investors.
Tax usually applies only when investors redeem or switch units.

This means profits can stay inside and compound without yearly tax erosion.

In PMS, every stock is in your Demat account. So:

Each profitable sale by the PMS manager is treated as *your capital gain.
A high-churn strategy can generate many taxable events in the same year.
Tax may be payable even if you do not withdraw any cash.

Repeated tax outflow reduces the base that can grow in future years. Two portfolios with similar gross returns—one in a mutual fund, the other in a PMS account with frequent trading—can end up very far apart when you look at net, post-tax returns over a decade.

“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” – John C. Bogle

Tax and fees both act like costs. At StocksInfo.AI, we always suggest comparing post-tax, post-fee returns over a full market cycle. For many long-term, goal-based investors, that view highlights a clear tax edge in favour of mutual funds.

Who Should Choose What? A Practical Guide For Indian Investors

With all these differences laid out, the real choice becomes personal. The question is not which product “wins” a debate, but which structure fits your capital, risk mindset, and time frame.

When Mutual Funds Make More Sense

Mutual funds tend to suit a very broad set of investors because they combine access, diversification, and simpler costs. They are especially useful for goal-based investing through SIPs—retirement, a child’s education, or buying a home.

Mutual funds can be a better fit when:

Your total surplus is still below ₹50 lakhs, so PMS is not even available.
You prefer a low-effort approach: you are busy with work or business and do not want to track every trade.
You value tax efficiency and steady compounding: you are comfortable running SIPs and staying invested for many years.
You want exposure across asset classes—equity, debt, and index funds—without having to pick individual stocks.

When PMS Starts To Look Attractive

PMS comes into the picture once an investor crosses the ₹50 lakh mark in surplus capital and has already built a solid mutual fund core.

PMS may fit better when:

You have higher risk tolerance and accept sharp ups and downs in portfolio value. Concentrated baskets of 15–20 stocks can rise faster, but also fall harder.
You want direct stock ownership and closer interaction with a portfolio manager, including strategy reviews and detailed discussions on holdings.
You seek focused exposure to segments such as small-caps or specific themes, where PMS strategies sometimes operate more freely than very large mutual funds.

“Risk comes from not knowing what you’re doing.” – Warren Buffett

That quote captures why PMS is better suited to investors who understand market risk and are comfortable with concentrated exposure.

Combining Mutual Funds And PMS

For many wealthier households, the most balanced path is not either/or. A common framework is:

Core: Long-term, diversified mutual funds (equity, debt, index funds) used to build stable wealth and support key goals.
Satellite: PMS for a smaller, higher-risk slice of the portfolio aimed at extra return in exchange for higher volatility, higher fees, and more tax friction.

The core provides stability, SIP discipline, and tax-efficient growth. The PMS sleeve adds a focused, higher-engagement element.

At StocksInfo.AI, our guides help investors think through these layers. By mapping corpus size, risk appetite, and time horizon to what each product offers, it becomes far easier to decide where mutual funds, PMS, or a mix of both might fit.

Conclusion

PMS vs Mutual Funds: Which Is Better for Indian Investors? There is no single right answer.

Mutual funds shine on access, diversification, transparency of costs under BER, and tax efficiency. They work very well as a core holding for most individuals.
PMS offers more personalised, concentrated portfolios with direct stock ownership, but it sits behind a ₹50 lakh entry gate and often comes with higher fees, higher volatility, and heavier tax impact.

SEBI’s BER move and clearer tax slabs mean both products now sit in a more transparent rule set. The real decision rests on:

How much capital do you have
How much risk can you tolerate
How actively do you want to engage with your portfolio

At StocksInfo.AI, we focus on research, context, and plain-language explanations to help investors make this call with confidence. Exploring our guides on mutual funds, ETFs, and PMS is a smart next step before signing any form or clicking an “invest” button.

FAQs

Question 1 – What Is The Minimum Investment Required For PMS In India In 2026?

SEBI has set the minimum investment for PMS at ₹50 lakhs, and this limit applies per investor per PMS provider. The rule keeps PMS in the High-Net-Worth segment and stops small savers from drifting into high-risk, concentrated products. In contrast, mutual funds remain open to very small SIPs, often starting from ₹100–₹500 a month, depending on the scheme.

Question 2 – Is PMS Better Than Mutual Funds For High Returns?

PMS portfolios can target higher gross returns because managers often run concentrated baskets and may pick smaller or less liquid stocks. The same features, however, bring:
Higher volatility
Higher fixed and performance-linked fees
More frequent capital gains tax
Once you adjust for costs and taxes, many well-chosen mutual funds—especially low-cost or index-based options—can match or beat the net, post-tax results of PMS over long periods.

Question 3 – How Is PMS Taxed Differently From Mutual Funds In India?

In PMS, each stock sale in the client’s Demat account is treated as the client’s own transaction. Any gain is taxed that year at:
20% for short-term gains (held one year or less)
12.5% for long-term gains (held more than one year), after the ₹1.25 lakh exemption
A busy PMS manager can therefore create many taxable events even when you do not withdraw any money.
In mutual funds, trades happen inside the fund structure and do not count as your personal transactions. Tax usually applies only when you redeem or switch units, which gives mutual funds a clear edge for long-term compounding.

Question 4 – Can I Invest In Both PMS And Mutual Funds At The Same Time?

Yes. Many experienced investors do exactly that. A frequent pattern is:
Keep most long-term money in mutual funds, spread across equity, debt, and index funds.
Use PMS for a smaller, higher-risk portion of the portfolio focused on more aggressive strategies.
This core-and-satellite idea lets the mutual fund side provide stability and tax efficiency, while PMS is used for higher-conviction bets.

Question 5 – What Changed In 2026 For Mutual Fund Fees In India?

SEBI shifted mutual fund costs from a single Total Expense Ratio (TER) to a Base Expense Ratio (BER) structure. Under this model:
BER reflects the pure fund management charge.
Taxes and other statutory levies (like GST, STT) are billed separately on actuals.
This split gives investors clearer insight into what they pay the fund house versus what goes to the government, making mutual fund pricing more transparent and easier to compare.