Mutual Funds vs PMS vs AIF

Confused between PMS, AIFs, and Mutual Funds? You are not alone. While PMS and AIFs need crores and come with high risk, mutual funds let you start with just Rs. 100 and still access expert-managed, diversified portfolios.
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Difference between PMS vs AIF vs Mutual Funds
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3 min
15-May-2025

If you have ever wondered how to grow your wealth beyond savings accounts and FDs, you’ve likely come across terms like Mutual Funds, PMS, and AIF. While they all aim to grow your money, they’re built very differently.

PMS (Portfolio Management Services) are designed for high-net-worth individuals who want personalised investments. AIFs (Alternative Investment Funds) are meant for sophisticated investors who want access to non-traditional markets. And Mutual Funds (MFs) are retail-friendly schemes that allow even new investors to start small.

If you’re new to investing, mutual funds offer a trusted way to build wealth gradually—without needing lakhs. Even Rs. 100 a month can put your money to work. Start investing or SIP with just Rs. 100!

Each of these options comes with its own set of rules, risk levels, and returns. Let us break them down so you can understand which investment option suits your needs.

What are mutual funds?

Mutual funds let you invest in a mix of assets like equity (stocks), debt (bonds), or a combination of both—without needing to research or track individual stocks. A professional fund manager takes care of the buying and selling, while you simply invest and watch your money grow over time.

The best part? You don’t need lakhs to start. You can begin with just Rs. 100 through a SIP or invest a lump sum if you prefer. Since mutual fund shares are traded based on their daily NAV (Net Asset Value), you can buy or redeem your units at the end of each trading day.

Mutual funds are built for everyday investors who want ease, transparency, and expert management—whether they’re starting small or aiming big. Invest monthly starting Rs. 100.

It is a flexible, regulated way to diversify your portfolio and participate in market growth without needing expert knowledge.

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What are portfolio management services (PMS)?

PMS is like having your own personal money manager. These services are tailored for high-net-worth individuals (HNIs) who have a large corpus—typically starting at Rs. 50 lakh and want a more customised investment strategy.

Under PMS, your money is actively managed across various assets like equity, debt, fixed income, and more. Unlike mutual funds, your investments aren’t pooled with others; they are managed separately according to your risk profile and financial goals.

You get access to exclusive strategies, regular performance updates, and more control over your portfolio—but this comes at a higher cost and with limited liquidity.

What are alternative investment funds (AIFs)?

AIFs are pooled investment vehicles, but instead of buying regular stocks or bonds, they invest in more complex assets like private equity, real estate, hedge funds, venture capital, and commodities.

These funds are regulated by SEBI and are generally open only to experienced, wealthy investors—since the minimum investment starts at Rs. 1 crore. AIFs offer exposure to unique strategies and less liquid markets, which can lead to higher returns—but they also carry higher risk.

Think of AIFs as an option for those who’ve already mastered mutual funds and PMS and want to explore more niche investments.

But not everyone needs to invest Rs. 1 crore to grow their wealth. Mutual funds offer professionally managed diversification for far less—with the convenience of daily liquidity and a wider investor base. Open your mutual fund account today!

Difference between PMS, AIF, and MF: Mutual fund vs PMS vs AIF

To understand which investment path might suit you best, here’s a quick comparison across key features:

Aspect

Mutual Funds (MFs)

Portfolio Management Services (PMS)

Alternative Investment Funds (AIFs)

Structure

Collective pool of investors

Individually managed portfolio

Pooled vehicle with non-traditional assets

Investor Profile

Retail investors

High-net-worth individuals (HNIs)

Sophisticated and institutional investors

Regulation

SEBI

SEBI

SEBI

Transparency

High

High

Varies across categories

Customisation

Low

High

Depends on the strategy

Investment Horizon

Short to long-term

Medium to long-term

Medium to long-term

Risk Management

Broad diversification

Tailored risk strategy

Risk varies based on fund type

Fund Manager

Professional fund manager

Dedicated portfolio manager

Fund team or professional manager

 

PMS vs AIF vs MF with examples

Let’s break down the key differences with real-life investing scenarios:

1. Investment objective

  • Mutual Funds are built for wealth creation and diversification over time.

  • PMS is used by wealthy individuals seeking higher returns with personalised planning.

  • AIFs aim to access niche investments like startups, real estate, or private equity.

2. Investment strategies

  • Mutual funds usually invest in publicly listed stocks and bonds for retail investors.

  • PMS offers a curated basket of securities based on your personal risk appetite and goals.

  • AIFs invest in unconventional assets and use sophisticated strategies to try for higher gains.

3. Minimum investment

  • MFs can be started with just Rs. 500, or even Rs. 100 via SIP.

  • PMS requires a minimum of Rs. 50 lakh.

  • AIFs are reserved for those investing Rs. 1 crore or more.

4. Fees

  • Mutual funds charge a modest expense ratio, typically between 1% and 2.25%.

  • PMS investors pay management fees (1–3%) plus performance-linked charges.

  • AIFs generally charge 2% management fees plus a 20% share in profits.

5. Liquidity

  • MFs are the most liquid—buy or sell anytime based on NAV.

  • PMS gives you direct ownership but with limited liquidity.

  • AIFs usually come with a lock-in and limited exit options.

Each investment avenue comes with its own rules, risks, and potential rewards. Choosing between PMS, AIF, or mutual funds really depends on how much you want to invest, how much risk you’re okay with, and how involved you want to be. Each investment style caters to a different stage of wealth building. If you’re starting out or looking to diversify your existing investments, mutual funds strike the right balance of return, risk, and access. Find the right mutual fund

Mutual funds pros and cons

Mutual funds are one of the most accessible ways to invest, especially for beginners. But like every financial product, they come with both benefits and limitations.

Pros

Cons

Professionally managed

Management fees apply

Diversification reduces risk

Market fluctuations impact returns

Highly liquid

Investors can’t control specific fund holdings

Easy to start—even with Rs. 100

Capital gains may be taxed

 

Why it works: Mutual funds are managed by experts and spread your money across various stocks or bonds. This lowers your risk and saves you the effort of researching each investment.

What to watch out for: You might have to pay small fees, and you won’t have a say in where exactly the money goes. Also, your returns can be taxed depending on how long you stay invested.

Portfolio management services pros and cons

PMS is built for those who want a more customised approach and can invest big. It offers powerful advantages—but it’s not for everyone.

Pros

Cons

Fully personalised investments

Requires at least Rs. 50 lakh to start

Managed by dedicated experts

High fees compared to mutual funds

Greater transparency in reporting

May focus too much on a few assets

Potential for better returns

Less liquidity than MFs

 

Why it works: If you have the capital, PMS allows you to craft an investment strategy that’s tailor-made to your goals. It gives you more control and a one-on-one relationship with a portfolio manager.

What to watch out for: The entry ticket is expensive, and the management costs are higher. Plus, getting your money out isn’t as easy as redeeming mutual fund units.

Alternative investment funds pros and cons

AIFs are designed for experienced investors who want to go beyond traditional markets and explore newer, high-growth opportunities.

Pros

Cons

Exposure to unique asset classes

Entry barrier of Rs. 1 crore or more

High-return potential

Less liquidity and more lock-ins

Access to private equity, real estate, and more

Complex regulations and riskier instruments

Managed by specialised fund teams

Higher risk of unconventional asset failure

 

Why it works: AIFs are attractive if you’re looking to diversify into areas like startups, infrastructure, or real estate that regular MFs can’t offer.

What to watch out for: AIFs are riskier, harder to exit, and more complex to understand. You need deep pockets—and patience.

List of low-risk mutual funds

Which is better: PMS vs mutual funds vs AIF?

There’s no one-size-fits-all answer here. Each option—Mutual Funds, PMS, and AIF—has a clear purpose and is meant for a different type of investor.

If you’re just getting started or want a hassle-free way to invest in equities or debt with as little as Rs. 100, mutual funds offer the easiest entry point. They’re great for long-term goals, have built-in diversification, and are liquid enough for most needs.

If you’re a high-net-worth individual and want a portfolio built just for you, PMS offers more flexibility, hands-on strategies, and customisation that mutual funds don’t. But you’ll need at least Rs. 50 lakh to get started.

And if you’re an experienced or institutional-level investor seeking access to unique assets like real estate, startups, or hedge strategies, AIFs offer high-risk, high-return potential—but with more complex rules and a minimum investment of Rs. 1 crore.

The right choice depends on your financial capacity, risk appetite, and how much involvement you want in your investments. Many seasoned investors diversify across all three—MFs for consistency, PMS for customisation, and AIFs for alternative growth.

For most investors, mutual funds strike the right balance—lower cost, wide diversification, and expert management all in one place. Find the right mutual fund

Conclusion

Mutual Funds, Portfolio Management Services, and Alternative Investment Funds all serve different purposes—and none is universally “better” than the other.

  • Choose mutual funds for flexibility, professional management, and ease of entry.

  • Go for PMS if you want personalised strategies and have the capital to back it.

  • Consider AIFs if you’re ready to explore beyond traditional markets and take on higher risk.

By understanding how they differ in structure, cost, liquidity, and access—you can match the right investment vehicle with your unique financial goals. Whether you’re building long-term wealth, seeking higher returns, or diversifying into niche markets, there’s a strategy suited for every kind of investor.

If you are still unsure where to begin, exploring mutual fund plans can be a low-risk way to start building financial momentum today. Explore top-performing mutual funds

Essential tools for mutual fund investors

Mutual Fund Calculator Lumpsum Calculator Mutual Funds SIP Calculator Step Up SIP Calculator
SBI SIP Calculator HDFC SIP Calculator Nippon India SIP Calculator ABSL SIP Calculator
Tata SIP Calculator BOI SIP Calculator Motilal Oswal Mutual Fund SIP Calculator Kotak Bank SIP Calculator

Frequently asked questions

Is AIF better than mutual fund?
Whether AIFs are better than mutual funds depends on individual investor preferences, risk tolerance, and financial goals. AIFs offer exposure to alternative assets and may potentially provide higher returns but often come with higher risks and may require larger investments compared to mutual funds.
What is the difference between PMS and AIF funds?
The primary difference lies in their target investors and investment strategies. PMS caters to high-net-worth individuals with personalised portfolio management, while AIFs target sophisticated investors with pooled investments in alternative assets beyond traditional stocks and bonds.
Which is better, PMS or mutual fund?
Selection between PMS and mutual funds depends on individual investor preferences, financial goals, and risk tolerance. PMS offers personalised portfolio management but requires larger investments and may have higher fees, while mutual funds provide diversification and accessibility to retail investors with lower minimum investment requirements.
What are the disadvantages of AIF?
One disadvantage of Alternative Investment Funds (AIFs) is that they often come with higher fees and expenses compared to traditional mutual funds. Additionally, AIFs typically involve higher risks due to their focus on alternative asset classes, which may lead to increased volatility and potential loss of capital for investors.
Is AIF tax-free?
Whether AIFs are tax-free or not depends on various factors, including the specific type of AIF and the investor's tax jurisdiction.
Who should invest in AIF?
AIFs are suitable for sophisticated investors with a higher risk appetite and a desire for exposure to alternative asset classes such as private equity, real estate, or hedge funds.
Why do people invest in PMS?
People invest in PMS for personalised portfolio management tailored to their individual financial goals, risk profiles, and investment preferences.
Who should invest in mutual funds?

Mutual funds are ideal for retail investors looking for simple, diversified, and tax-efficient investments. They suit those with limited market knowledge or time for active portfolio management. High-net-worth individuals (HNIs) seeking systematic investment options can also benefit. However, mutual funds may not be suitable for those preferring high-risk, high-return opportunities or direct stock ownership.

What are the advantages of PMS over mutual funds?

Portfolio Management Services (PMS) provide tailored investment strategies, direct stock ownership, and customised portfolios, making them suitable for investors with Rs. 50 lakh or more. PMS offers more control and transparency compared to mutual funds. However, it lacks tax benefits and involves higher fees, making it better suited for sophisticated investors seeking personalised solutions over pooled investments.

What makes AIFs unique among investment vehicles?

Alternative Investment Funds (AIFs) allow investments in niche areas like private equity, real estate, and unlisted shares. They offer sophisticated strategies, including leverage, and cater to investors willing to invest Rs. 1 crore or more. AIFs provide diverse risk-reward options but require a higher understanding and are less tax-efficient compared to mutual funds or PMS.

What are the tax implications of PMS and AIFs?

PMS treats investments as direct equity holdings, with taxes filed individually by investors based on gains. AIFs, particularly Category III, are taxed at the fund level, streamlining filings but leading to shared tax impacts. Mutual funds often offer more favourable tax structures, making them more efficient for tax-conscious investors.

How do AIFs handle market fluctuations differently from PMS?

AIFs, especially close-ended ones, can invest in illiquid or alternative assets, offering flexibility during market fluctuations. They are less impacted by inflows or redemptions compared to PMS. However, AIFs face risks of forced exits during adverse market conditions, making their performance more dependent on market liquidity and manager expertise.

How do I decide between mutual funds, PMS, and AIFs?

The choice depends on your investment amount, risk appetite, and goals. Mutual funds suit low-risk investors seeking simplicity and liquidity. PMS is ideal for those desiring customised portfolios with higher investment capacity. AIFs fit sophisticated investors aiming for niche strategies with higher risk and complexity. Expert advice is essential for informed decisions.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

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In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

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