Which PMS is the Best? That's the Wrong Question!

One very important mistake that people make is assuming that PMS should automatically replace mutual funds as their portfolio grows. PMS should add to your portfolio.

Mutual funds can continue to remain the core of your portfolio. So why do some serious investors consider investing in a PMS, and when does it actually make sense? Imagine this.

An investor has been investing in mutual funds for many years. His SIPs are growing and today his portfolio has become sizable.

One day, his relationship manager calls and says, “Sir, your portfolio has now become big. You should move to PMS.” It sounds premium. It sounds exclusive.

At times, it even feels like you have reached the next level. And that is where the problem begins.

A lot of investors believe that mutual funds are for common investors, while PMS is the product for serious investors. That is a real mistake. PMS is not automatically the next step after mutual funds.

It is not a trophy that proves you are rich. PMS is a strategy, and every strategy has a role to play.

So the real question is not, “Which PMS has given the best return?” The real question is, “Which PMS strategy suits my portfolio?” One PMS strategy may be excellent for one investor and completely unsuitable for another.

Hi, I’m Sachin. I have spent almost a decade and a half in wealth and asset-management companies, working across mutual funds, PMS and a lot of client conversations. But leave that aside.

In this presentation, I want to talk about PMS through the right lens — not just past returns, not just brand names, and not as someone pitching a PMS story today.

I want to look at PMS strategy, portfolio construction, costs, investor behaviour and, most importantly, suitability.

A lot of people who buy PMS today do it because they find it premium, because it feels like a natural upgrade as their portfolio size has grown, or simply because they have seen very strong returns over the last three years.

But that is not the right way to look at PMS. First, let us be very clear. Mutual funds are a very good investment vehicle for most investors.

They are simple, regulated, diversified and very suitable for long-term wealth creation.

As the portfolio size grows, some investors may seek a specific strategy, a more concentrated portfolio, a high-conviction manager or a particular style of investing.

That may not always be available through a diversified mutual fund, and that is where PMS can play a role. The important word here is “role”. PMS should have a role in your portfolio.

It should not be bought simply because of last year’s returns. Mutual funds can form the core of your portfolio and PMS can be a satellite.

Satellite means that it has a specific role to play. It should not dominate your whole portfolio, disturb the entire portfolio, or simply replicate what you already own.

So why do some serious investors consider PMS? A PMS can sometimes offer a wider and sharper investment canvas. In a mutual fund, you may see 50, 60 or even 100 stocks.

A PMS manager, on the contrary, may hold only 20 or 30 stocks. That allows the manager to express views in a very high-conviction and concentrated manner.

The manager does not necessarily need to hug a benchmark and can build a portfolio very differently from a diversified mutual fund. This flexibility creates the possibility of differentiated alpha.

Mark my word here: possibility, not guarantee. Because the same flexibility also creates more risk. A concentrated PMS can fall substantially. A mid-cap PMS can have very sharp drawdowns.

A thematic or sectoral PMS can underperform for a very long time. Even a couple of stocks going wrong can meaningfully hurt the portfolio and its return.

So can we say that PMS is automatically a better vehicle than a mutual fund? No. It is a different vehicle.

If the portfolio manager, the strategy, the role of the PMS in your portfolio and your expectations all align, it can definitely create a better opportunity.

The flexibility can create more opportunity, but at the same time it can also bring more risk.

Now let us look at one of the most important things people ask when they want to invest in PMS.

The first question usually is, “Which PMS has delivered the best return?” That is not an unreasonable question, but it can be misleading because returns do not come from nowhere. They come from a strategy.

They come from a particular investing style, exposure to certain sectors, a particular market-cap segment, or a style that happened to be in favour during that market phase and may or may not remain in favour later.

Take an example from NSE data. The Nifty 200 Momentum 30 Index, as of June 2026, had delivered roughly flat to negative returns over the previous one year.

During the same period, another single-factor index, the Nifty 200 Value 30 Index, had delivered approximately 20%.

It was the same market, the same period and the same Nifty 200 universe, but the outcomes were completely different. Why does that happen? Because different strategies behave differently.

One manager may be running quality, another value, another momentum. Similarly, PMS returns can be completely different depending upon the style the manager follows. Is it quality? Is it value? Is it momentum?

Is it mid-cap or small-cap? Is it focused on a particular theme?

Sometimes what appears to be the sheer brilliance of a manager can actually be plain luck or simply a style that happened to work very well during that phase.

So the next time somebody shows you strong recent outperformance, do not stop at the return. Ask what created that outperformance. Was it value? Was it quality? Was it momentum?

Was it exposure to a particular sector? Or was it simply concentration in a couple of stocks? When you buy a strategy, you are not just buying its historical return.

You are buying the underlying portfolio and the behaviour of that portfolio. A quality strategy can underperform when the market is chasing cyclicals, PSUs, commodities or high-beta stocks.

A value strategy can remain boring for a long period and then suddenly outperform. A mid-cap strategy can give extraordinary returns, but it can also correct sharply.

A concentrated PMS can deliver very good returns if the fund manager gets the stock selection right, but if even a couple of stocks go wrong, it can hurt the portfolio substantially.

The same product category can therefore create completely different experiences, journeys and risks. Investor suitability becomes extremely important.

Let us now look at some broad PMS strategy types. A quality PMS typically buys strong businesses with clean balance sheets, good return on capital, predictable growth and the ability to compound over long periods.

Such strategies can work beautifully for a long time, but they can also underperform when markets are chasing cyclicals, commodities, PSUs, deep-value stocks or high-beta opportunities.

A value strategy, on the other hand, buys stocks that may be neglected, under-owned or trading below what the manager believes is their intrinsic value.

These strategies can test your patience for a long period, and then suddenly outperform a large part of the market.

A thematic PMS may invest around one specific opportunity — for example Make in India, China Plus One and manufacturing, financialisation of savings, Digital India, real estate, chemicals or defence.

It is essentially trying to capture one theme. If that theme plays out, performance can be very strong. But if that theme falls out of favour, the strategy can underperform significantly.

Similarly, a mid- and small-cap PMS may invest in under-researched and under-owned stocks. In a bad market, these portfolios can correct significantly because liquidity in these stocks can be much lower than in large caps.

So PMS selection is not merely a return-ranking exercise. There is much more to it.

Another very important mistake people make is investing in a PMS without checking their existing portfolio. Suppose you already have six or seven good mutual funds across large-cap, mid-cap, growth and other styles.

You then add another PMS without checking whether it actually complements what you already own. The PMS should work as part of a core-plus-satellite framework.

Whatever you add should bring some additional value to the portfolio.

At times, the PMS may simply overlap with your existing mutual funds and increase your exposure to the same stocks or sectors you already hold.

There is no point in adding a product just for the sake of adding a product. When you add a product to your portfolio, it should add value.

So who should consider investing in PMS?

In my opinion, PMS is more suitable for investors who already have the basics in place: an emergency fund, appropriate health protection, clear financial goals, the right asset allocation and a strong core portfolio.

PMS is not the first building block in your wealth-creation journey. It can be a next step once you already have a strong core in place.

In India, technically you can invest in a PMS with ₹50 lakh. But ₹50 lakh is the eligibility threshold. It is not necessarily the suitability threshold. Consider two investors.

Investor A has an investable corpus of ₹75 lakh and invests ₹50 lakh of that in one PMS. Almost two-thirds of that investor’s portfolio is now concentrated in one strategy.

That is a very high concentration. Now consider another investor with a ₹5 crore portfolio who invests ₹50 lakh in one PMS. That is just 10% of the overall portfolio.

In that case, it genuinely behaves more like a satellite allocation around the core portfolio.

So the real question is not merely, “Am I eligible to invest in PMS?” The real questions are, “Should I even consider PMS?” and, if yes, “How much should I allocate?”

Generally speaking, a PMS may make sense as perhaps 10%, 15% or 20% of your equity portfolio, depending upon your risk appetite, goals, liabilities and overall financial situation.

The key principle is that PMS should add to your portfolio, not dominate it.

Now suppose you have the basics in place and you seriously want to consider investing in a PMS. One question you must ask the manager or adviser is: “When is this PMS likely to underperform?”

Do not ask only about the returns it has delivered in the past. Ask in what market cycle it is likely to underperform. How long can it underperform? How much can it underperform?

What are the cost implications? How concentrated is the portfolio? These questions give you a deeper understanding of how much risk the strategy actually carries.

Then ask yourself another question: can I live through that period of underperformance?

If you cannot emotionally and financially stay invested through the strategy’s difficult phase, you may end up exiting at exactly the wrong time.

To survive a period of underperformance, it is extremely important that you understand the strategy you own.

Now let us talk about costs in PMS. Headline returns are not enough because there may be management fees, performance fees, custodian charges, brokerage costs, STT and taxation created by portfolio churn.

Gross return can therefore be misleading. If a ₹1 crore portfolio delivers a 15% gross return, that does not automatically mean you have made ₹15 lakh that you can keep.

Even a quoted return after some fees may not reflect the full impact of taxes and, depending upon how the return is presented, other charges.

The question you should ask is: how much am I actually going to keep? For you, the final investment return is what ultimately counts.

This becomes particularly important when you compare PMS returns with mutual fund returns.

So let us build a checklist before investing in a PMS. First, what role does this PMS play in my portfolio? Second, is it genuinely different from what I already hold?

Third, what style does this manager follow — quality, value, momentum or a particular theme? Fourth, when does this style typically underperform?

Fifth, can I emotionally and financially survive the drawdown that this portfolio may experience? Sixth, what is the full cost structure and what return will I actually keep?

And seventh, is my allocation to this PMS so significant that it dominates my portfolio, or is it genuinely a satellite allocation?

If the answers to these questions make sense, then PMS can potentially be a very useful wealth-creation tool.

But if you want to add PMS simply because it delivered extraordinarily good returns in the past, pause. PMS is not a logical or automatic next step after mutual funds.

It is not necessary or suitable for every investor. Ultimately, the aim of serious wealth creation is not to collect products. It is to build the right investment portfolio.

So the next time somebody shows you a shiny PMS with very strong recent outperformance, do not blindly reject it, but do not blindly accept it either. Ask questions. What strategy does it follow?

How much underperformance has it experienced, and how much can it potentially experience in the future? Does it complement my existing portfolio? What kind of cost structure does it have?

What returns will I actually keep after expenses and taxes? A PMS should fit your portfolio and your risk profile. It should be something you can continue to own for the long term.

Do not chase a PMS simply because it has shown very strong returns. Look for the right PMS strategy.

I hope this video has helped you think more clearly about PMS, portfolio strategy and investment decisions. Thank you. Do like, share and subscribe. I’m Sachin. See you in the next video.