Offers
Rates
V-KYC
Debit Card Related
Credit Card Related
SA Welcome Kit 
Manage Mandate(s)
Get Mini Statement
categories
Bloggers
Blog collection
Press Release
Understanding the Difference between Alternative Investment Fund (AIF) and Portfolio Management Service (PMS) | IndusInd Pioneer
Posted on Thursday, March 31st, 2022 | By IndusInd Bank
The typical investment instruments such as mutual funds and fixed deposits are great for retail investors. However, if you are a high net worth individual looking to get more out of your capital and are willing to take on additional risks, portfolio management services PMS and Alternative Investment Funds AIF might just be for you.
Both PMS and AIF are private wealth management instruments catered for HNIs as they require higher minimum investment requirements when compared to other investment instruments. Where portfolio management services are focused on building portfolios of listed securities customized to your goals and risk profile, AIFs are pooled investment funds that focus on alternative investment asset classes such as real estate, private equity, hedge funds, and such.
Here’s everything you should know about PMS and AIF:
Portfolio Management Services
Portfolio management services are provided by wealth management companies for high net worth individuals looking to take on additional risks and generate better returns than the market. The SEBI-mandated minimum investment requirement for these services is 50 lakhs.
Under PMS, a portfolio manager acts on your behalf and invests your capital in listed securities such as stocks, fixed income securities, and other structured products with the aim of generating high returns.
These are personalized services where you can track your portfolio, its performance, the risk exposure, etc. It is a great way for HNIs to generate alpha returns on their capital in the long run using the expertise of professional money managers.
Alternative Investment Funds
As the name suggests, AIFs are more focused on investing in Alternative investments, which essentially are investment products other than the typical asset classes such as equity and debt. The asset classes invested in by AIFs include private equity, hedge funds, real estate, etc.
Another major distinguishing factor between AIFs and PMS is that AIFs are pooled investment funds. This means that money is pooled in from many different investors and the entire pool is invested in the above-mentioned asset classes. This does give away some of the personalization of portfolio management services but are a great way to gain exposure to Alternative asset classes as a diversification tool.
SEBI classifies AIFs into three different categories based on the kind of instruments they invest in. These are Category 1, Category 2, and Category 3 AIFs.
The SEBI-mandated minimum investment requirement of AIFs is 1 crore.
Differences between PMS and AIF
| PMS | AIF | |
| Pooling of funds | These are not pooled investment instruments. Investors get personalized wealth management services as per their goals and risk profiles | Money is pooled in from many different investors in order to create a fund, which is further invested in alternative investment classes |
| Asset classes invested in | PMS invests in structured investment instruments such as listed shares of companies, bonds, etc. | These are invested in alternative investment classes such hedge funds, private equity funds, real estate, etc. Depending on the type of asset class invested in, SEBI classified AIFs into 3 categories: Category 1, 2, 3. |
| SEBI-mandated minimum investment amount | 50 lakhs | 1 crore |
| Lock-in period | There is no specific lock-in period and investors can take out capital as per the terms of the agreement with the wealth manager | There is a specific lock-in period |
Conclusion
Both PMS and AIFs are great investment options for HNIs to diversify their portfolios and earn higher long term returns on their capital, albeit at higher risk. Where AIFs are pooled investment instruments, PMS are more personalized portfolio management services with both having their own benefits and limitations.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
