Beyond stocks and bonds: Understanding the PMS & AIF ecosystem in India

In today’s dynamic investment landscape, exploring alternative avenues is the key to optimising your investment potential. If you have already diversified with traditional asset classes such as equities, fixed income, gold, real estate and its ilk, then this may be the right time to consider using other investment options such as Portfolio Management Services (PMS) and Alternative Investment Funds (AIF). These alternatives can provide unique opportunities for growth and risk management. This guide will walk you through the essentials of PMS and AIFs, to help you make informed decisions and make your investment journey easier and more efficient.

Defining Alternatives

Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) represent distinct avenues for investors seeking tailored investment strategies. PMS platforms are designed for investors with a minimum investment threshold limit of Rs 50 lakhs. Managed by seasoned portfolio managers, PMS focusses on building portfolios consisting of publicly traded securities. The goal is to outperform market benchmarks while managing risks.

On the other hand, AIFs, which fall under three categories, offer access to unconventional assets like private equity, venture debt, and structured credit. Unlike mutual funds, AIFs pool capital for strategic allocation into non-traditional investments. However, they require a higher entry point of Rs 1 crore.

PMS investors directly own securities with flexible redemption options, whereas AIFs are typically closed-ended with preset lock-in periods, highlighting the contrasting features of these two investment vehicles.

Features and Benefits

AIFs offer investors a diverse array of features, including the pooling of funds, professional management, and portfolio diversification, enabling them to access alternative asset classes potentially yielding higher returns while mitigating risks through diversified investment strategies.

In comparison, PMS provides personalised portfolio management, flexibility, and transparency, catering to individual investor preferences. PMS also offers benefits such as customised investment strategies tailored to specific financial goals, direct ownership of securities, and tax efficiency. By leveraging these features and benefits, investors can diversify their portfolios, optimise returns, and navigate market uncertainties effectively, while aligning their investments with their long-term financial objectives.

Strategies & Trends

Both AIF and PMS providers employ various investment strategies to optimise returns and manage risks. One common strategy is equity long-short, where managers take both long and short positions in stocks to capitalise on market trends while hedging against downside risks. Another strategy revolves around investing in distressed debt, acquiring debt instruments of financially troubled companies at discounted prices, with the expectation of capital appreciation upon their recovery. Real estate investments within these avenues offer diversification and income generation through property acquisitions, development projects, or investments in real estate investment trusts (REITs).

Emerging Trends

There is a growing focus on ESG (Environmental, Social, and Governance) investing, an approach which integrates sustainability criteria into investment decisions, aligning with ethical considerations and addressing environmental and social concerns.

Impact investing is another rising trend, emphasising investments in companies or projects that generate positive social or environmental outcomes alongside financial returns.

As investors increasingly prioritise robust returns and optimal diversification beyond traditional routes, alternative investment options such as PMS and AIF are gaining ground. These avenues offer market participants methods to amplify their portfolio efficiently.

Disclaimer: The article is authored by Bhavesh Bhanushali, Director at Supreme Prime Wealth. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class.

This article is published by the Insider Studios team. You can get in touch with them on insiderstudios@businessinsider.in.