For High Net Worth Individuals (HNIs), investments are no longer a choice among fixed deposits, mutual funds, and listed stocks. Along with wealth creation, HNIs have started focusing on diversified investment portfolios and custom investment solutions, among others.

Investment instruments like PMS and AIF become more pertinent for HFI investors who are looking for high risk, high returns.

But when it is about choosing one of the two, the concern arises: AIF and PMS, which one is better for HNIs?

The answer depends on the financial needs, risk tolerance, need for liquidity, and time horizons of the investors. While PMS and AIF may seem like competing options, they often serve different purposes in an HNI investment portfolio.

This article compares AIF and PMS across their structure, investment approach, minimum investment amount, taxation, liquidity, and suitability for HNIs.

Why are HNIs exploring alternatives to traditional investments?

Traditional investment products like fixed deposits, bonds, mutual funds, and listed equities remain an important way of creating wealth. But then again, an experienced investor would always look forward to having exposure beyond traditional asset classes.

It’s not about replacing the traditional asset classes but diversifying into better asset classes.

Portfolio management services enable HNIs to get a professional and customized exposure to the securities market. Whereas Alternative Investment Funds (AIFs) expose HNIs to alternative investment options, including private equity, venture capital, infrastructure, private credit, and so forth.

BellWether explains that AIF is a strategic placement in a seasoned portfolio and not a replacement for traditional asset classes. 

In the case of HNIs, the question to ask should not be “AIF or PMS?”

Rather it should be,

What place should PMS or AIF take in my wealth management plan?

What is PMS?

Portfolio Management Services (PMS) refers to an investment service where professional portfolio managers manage an individual’s investments to align with their financial goals. 

Unlike mutual funds, PMS provides customized portfolio management services wherein the investor owns the securities in their portfolio. BellWether’s PMS portfolio is tailor-made for HNIs, UHNIs, NRIs, and others.

How do the portfolio management schemes work?

• Understand the investor’s wealth goals and risk tolerance
• Construct a portfolio according to the strategy chosen by the investor
• Conduct investments and manage the portfolio
• Keep track of portfolio performance, diversify, and 
• Rebalance the portfolio as per wealth goals and investment returns
• Update the investor from time to time

BellWether Associates offers discretionary and non-discretionary portfolio management along with active and passive portfolio strategies. The portfolio manager or the relationship expert decides on the investments in discretionary PMS, whereas in non-discretionary PMS, the final decision-making authority stays with the investor.

The minimum investment criteria for PMS in India is INR50 lakh as per SEBI guidelines.

Explore Bellwether’s Portfolio Management Services and the various strategies to understand its approach to customized wealth management. 

What is an AIF?

An alternative investment fund is a special investment category that differs from conventional investment instruments. It is a privately pooled fund. Generally, institutions and HNIs invest in AIFs as for alternative funds, a substantial investment amount is required. 

AIFs allow investors to have access to alternative investments that could be outside traditional investments, such as venture capital, private equity, infrastructure, debt, and others. SEBI has categorized AIFs into Category I, II, and III in general terms.

The offerings of BellWether in relation to alternative investments cover various sectors like FinTech, Industry 4.0, HealthTech, and Supply Chain & Logistics.

For detailed explanations, investors can refer to Bellwether’s guide on Alternative Investment Funds (AIFs) or explore its AIF investment solutions. 

For most AIFs, the general minimum investment requirement is ₹1 crore, but there are a few targeted AIFs that begin with ₹25 lakh. Regulatory exceptions and specific fund structures can apply, including provisions for accredited investors. 

AIF vs PMS: The differentiating factors. 

Factor	PMS	AIF
Structure	Managed portfolio/service	Pooled investment vehicle
Minimum investment	₹50 lakh	₹25 lakh–₹1 crore
Ownership	Direct securities	Units/interest in fund
Strategy	Usually listed securities; customized	Alternative/private/public market strategies depending on category
Customization	High	Limited at the individual investor level
Fees	Management/performance fees	Management/performance fees and fund expenses
Risk	Market and concentration risk	Strategy, market, liquidity, credit, and underlying-asset risk
Investor profile	HNIs/UHNIs seeking customization	HNIs/UHNIs seeking alternative exposure

How investment strategies of AIF and PMS differ for HNIs?

The investment strategy is one of the most important differences between PMS and AIF. 

PMS strategy

PMS strategies may focus on:

• Listed equities: invest in publicly listed companies
• Sector-specific opportunities: focus on selected sectors or investment styles like growth, value, or a combination. 
• Growth- or value-oriented strategies
• Centralized portfolios: investments are managed under a unified portfolio strategy by professional managers.  
• Active portfolio management: monitors market conditions and investments to make timely portfolio decisions on a regular basis. 
• Customized asset allocation: allocates investments across assets based on the investor’s goals, risk profile, and investment horizon.
• Portfolio rebalancing: timely adjusts portfolio holdings to maintain the desired asset allocation and risk level. 

The benefit of customizing a PMS portfolio means that the strategy could be made to match better with the investor’s risk tolerance, investment timeframe, and objectives.

For example, an HNI seeking growth might prefer an equity-oriented PMS strategy, while another investor may need a different approach. 

Bellwether Associate’s PMS strategy places focus on risk profiling, strategic asset allocation, and portfolio management.

AIF strategy

AIFs provide access to a wider range of investment opportunities, depending on the category and fund strategy. 

These involve: 

• Venture Capital: Investing in start-ups and growth-oriented businesses with strong future potential. 
• Private Equity: Investing in mature private companies with the intention of increasing growth and value in order to create wealth.
• Infrastructure: Investing in infrastructure investments such as energy projects, transportation projects, utilities, and related projects.
• Private Debt: Financing private companies with loan and debt instruments with an objective to generate income.
• Real Estate: Investing in residential, commercial, or any other real estate property in order to earn income and appreciation in capital.
• Structured Strategies: Employing structured financial instruments in order to obtain specific risk-return objectives.
• Hedge-Fund-Style Strategies: Using flexible strategies like long-short, arbitrage, and market-neutral techniques.
• Other Alternative Investments: Exploring specialized alternative investments outside the conventional investment categories based on fund mandates.

The designated Personal CFOs at Bellwether Associates currently highlight AIF opportunities across areas such as fintech, Industry 4.0, healthTech, and supply chain and logistics. 

This can make AIFs particularly relevant for investors who already have significant exposure to traditional listed markets and are looking to diversify their portfolio. 

PMS & AIF Taxation in India: The Difference 

Taxation is another important consideration when comparing PMS vs AIF. 

PMS Taxation in India

In the case of PMS, the investor owns the securities. So the tax implications depend on the nature of transactions and income.

Following are the highlights regarding PMS taxation in India: 

• Capital gains classification: Capital gains earned by selling securities might be categorized either as a short-term or long-term capital gain, depending upon the holding period.
• Nature of securities and transactions: Depending upon the nature of the transaction and the type of securities involved, there can be different tax implications.
• Portfolio turnover: Portfolio turnover may lead to more capital gain transactions being recorded.
• Dividend income and other income: Any dividend income or any other source of income may also attract tax separately, based on the provisions of the taxation law.
• Investor-level tax reporting: The investor holds the securities directly in the PMS and therefore is required to report his/her capital gain along with other income.

So HNIs need to assess both the pre-tax and post-tax outcome of a PMS, while taking a decision around PMS taxation.

AIF Taxation in India 

AIF taxation relies on the category of the AIF, the fund structure, and the nature of the income. 

In categories 1 and 2 AIFs, some amount of income may be subject to pass-through provisions under section 115UB, whereas category 3 AIFs are taxed differently. 

Capital gains, dividends, interest, and business income can also have different tax implications. 

Therefore, no single taxation rule applies uniformly, and tax consequences must be evaluated based on the specific fund structure and investor’s situation.

Bellwether Associates ensures the investors are not only guided on the taxation on AIF and PMS but they also emphasize  evaluating tax implications alongside portfolio objectives before investing. 

PMS or AIF: Which one is preferred by the HNIs?

No one-size-fits-all solution exists for deciding which is better. It is based on the investor’s present portfolio and financial goals.

Investors choose PMS when they, 

• Require greater customisations in the  portfolios
• Prefer direct investments in securities
• Want transparency in individual stock investments
• Prefer exposure to listed stock markets
• Require higher liquidity
• Want to match portfolio strategy with their financial goals
• Prefer active management of their portfolio

PMS is especially significant for HNIs who want professional management of their portfolio without losing transparency in individual investments.

 Investors choose AIF Investments when they, 

• Investors who seek access outside the conventional listed exchanges
• Have  greater risk tolerance
• Have a an appetite for lower liquidity 
• Are keen on investment instruments with longer investment period
• Seek access to private or alternative markets
• Are securing diversification outside the conventional equity/debt asset classes 

AIFs can be considered more fitting for investors willing to invest for the longer term and capable of understanding the risks linked to alternative investments. 

Bellwether Associates particularly notes that AIFs should be evaluated as a part of strategic asset allocation and may not be suitable for investors requiring short-term liquidity.

Can HNIs invest in both?

Yes. HNIs can invest in both PMS and AIFs. PMS and AIFs do not necessarily have to be seen as competing investment options.

They can serve completely different purposes in the investment portfolio of HNIs.

For instance:

PMS provides customized exposure to the equity market and securities.

AIF offers exposure to the alternative market or the private equity market.

Instead of asking, 

“Should I invest in PMS or AIF?” an HNI must first determine:

1. How much of the capital should be kept liquid?
2. What is the maximum amount of risk that can be tolerated by the portfolio?
3. What is the portion that can be invested in alternative investments?
4. What is the time horizon of the investment?
5. What are the tax needs of the investor?
6. How will the investment relate to existing assets?

Bellwether Associates’s broader wealth management approach focuses on personalized solutions, asset allocation, and risk management rather than treating every investment as a standalone decision. 

How does Bellwether Associates help HNIs to evaluate PMS and AIF investments?

The decision of choosing between a PMS or an AIF should not be solely based on their historical returns. Investments that have historically performed well may not be suitable for a specific investor due to the liquidity, risk and investment strategy or focus of the fund.

This is where Bellwether Associates’ personal CFO approach can add value. 

Team Bellwether Associates works across investment management, wealth management, AIFs, PMS, family office management, taxation, and succession planning. This allows investment decisions to be considered with the wider financial picture. 

Bellwether’s case studies demonstrate its broad approach across different areas like family office management, real estate management, liability management, risk management, and wills and estate planning. 

For HNIs and families, this broader perspective is important because investment decisions often connect with taxation, succession, liquidity, and family office requirements. 

Explore Bellwether’s case studies to understand how its wealth management approach addresses different client needs. 

Build a more strategic HNI investment portfolio with Bellwether Associates

Both PMS and AIF play a significant role in sophisticated wealth management portfolios; however, selecting the appropriate product depends on the context.

At Bellwether Associates, the emphasis is always placed on knowing the investor, his financial goals and also assessing how various investment options suit the overall financial strategy for individuals and also as a family or joint income holder.

Still curious about AIF or PMS, schedule a call with a personal CFO. 

FAQs

Q. Is PMS better than AIF for HNIs?

PMS and AIF are not universally better. PMS is suitable for those HN. Is who are seeking customized portfolios and direct ownership; on the other hand, AIF is suitable for those who are seeking alternative or private market exposure. The right choice depends on goals, risk-taking capacity, liquidity, and asset allocation. 

Q. Can an HNI invest in both PMS and AIF? 

Yes. An HNI can allocate their capital to both PMS and AIFs set against different purposes and wealth goals within the overall portfolio. 

Q. Is AIF riskier than PMS?

AIFs can involve a wide variety of risks compared to PMS because they may invest in private equity, venture capital, infrastructure, private debt, or complex strategies. However, risk depends on the specific funds, strategies, and underlying investments. PMS can also have significant risk. 

Q: How should HNIs compare PMS and AIF?

HNIs should compare PMS and AIF based on investment strategy, risk, liquidity, fees, taxation, manager track record, portfolio fit, and investment horizon, not simply past returns. Explore more about the PMS Schemes here.

Q. Does Bellwether Associate offer  both PMS and AIF solutions?

Yes, we  provide both PMS and AIF solutions. For AIF you can schedule a call here and you can check the offered PMS strategies for HNI here.