5 Reasons Why HNIs Prefer Portfolio Management Services Over Mutual Funds

5 Reasons Why HNIs Prefer Portfolio Management Services Over Mutual Funds

Introduction

When it comes to wealth management, mutual funds are often seen as the go-to option for most investors. They’re accessible, regulated, and come with relatively low entry barriers. But when you step into the world of high-net-worth individuals (HNIs), the story looks different.

HNIs—those with investible assets exceeding several crores—tend to prefer Portfolio Management Services (PMS) over mutual funds. Why? Because their financial needs are different. They aren’t just looking for decent returns—they’re looking for customisation, control, tax efficiency, and superior strategies that cater to their unique wealth goals.

Let’s break down the top five reasons HNIs gravitate towards Portfolio Management Services over mutual funds.

1. Customised Portfolios vs. One-Size-Fits-All

Mutual funds pool money from thousands of investors into a common portfolio. That means the same fund manager strategy applies equally to a college graduate investing ₹500 and an HNI investing ₹5 crore.

PMS, on the other hand, is like hiring a personal chef instead of eating at a buffet. Every portfolio is built after assessing the client’s:

• Risk appetite
• Return expectations
• Liquidity needs
• Long-term wealth goals

This bespoke approach ensures that HNIs are not boxed into generic asset allocations but can fine-tune their exposure to equities, bonds, or even alternative assets.

👉 Takeaway: PMS brings personalisation that mutual funds simply cannot offer.

2. Higher Transparency and Control

Mutual fund investors only see the Net Asset Value (NAV) and periodic fact sheets. The control is limited—fund managers make the buy-and-sell decisions.

With PMS, investors have full visibility of their holdings. Shares are bought and held in the investor’s name, not as a pooled fund. This gives:

• Greater clarity on where money is invested
• Flexibility to book profits or cut losses
• Custom reporting, making it easier to track performance

For HNIs, who often want to align investments with business cycles, personal cash flow, or even philanthropic goals, this direct control and transparency is invaluable.

3. Potential for Superior Returns

Studies have shown that PMS strategies often outperform mutual funds over the long term. A study of 335 PMS strategies vs. 388 mutual funds found:

• PMS outperformed benchmarks by an average of 70% across time frames.
• Mutual funds, in comparison, achieved 48% out performance.

While higher returns come with higher risk, PMS allows managers to take concentrated bets on high-conviction stocks—something mutual funds, due to diversification rules, cannot do.

👉 Example: A PMS manager may allocate 20% of the portfolio to a high-growth company, while a mutual fund cannot exceed a 10% cap in a single stock as per SEBI regulations.

4. Better Tax Efficiency

In mutual funds, when the fund manager churns the portfolio, capital gains tax is applicable on the entire pool. Investors have no control over when and how taxes are triggered.

In PMS, since securities are held in the client’s own name:

• Capital gains are calculated individually.
• Investors can choose to time their redemption for better tax outcomes.
• Losses can be set off against gains, improving overall tax efficiency.

For HNIs with significant tax liabilities, this flexibility can translate into lakhs saved each year.

5. Access to Exclusive Strategies and Expertise

HNIs don’t just want market returns—they seek alpha, or returns above benchmarks. PMS providers often design specialised strategies such as:

• Thematic portfolios (EV adoption, renewable energy, digital transformation)
• Sectoral bets (pharma, financials, IT)
• Quant-driven strategies using AI and data analytics

Moreover, PMS managers typically have a lower client load compared to mutual fund managers, allowing deeper focus on portfolio construction and ongoing monitoring.

As SEBI data shows, PMS assets under management (AUM) crossed ₹32 lakh crore in 2024, growing at a 26% CAGR projection till 2028. This surge reflects the growing trust of HNIs in PMS as a sophisticated wealth-building vehicle.

Comparison: PMS vs. Mutual Funds

Bottom line

For HNIs evaluating the top PMS companies in India, the choice of Portfolio Management Services over mutual funds is not just about chasing returns—it’s about customisation, control, efficiency, and exclusive access.

Mutual funds remain a fantastic vehicle for the mass market. But when the investment corpus is large, financial goals are unique, and expectations are higher, the services offered by top PMS providers deliver the personalized edge that wealthy investors need.

👉 Thinking about PMS for your portfolio? Book an expert call with Dezerv today to understand how a tailored strategy from a leading PMS can help you achieve your wealth goals.

Frequently Asked Questions

Q1. What is the minimum investment in PMS?
SEBI mandates a minimum of ₹50 lakh to invest in PMS. This ensures the service remains targeted to HNIs.

Q2. Do PMS always give higher returns than mutual funds?
Not always. PMS strategies carry higher risks due to concentrated bets. However, they have historically shown stronger alpha generation compared to mutual funds.

Q3. Is PMS safer than mutual funds?
Both carry market risks. PMS is riskier due to higher concentration, while mutual funds are safer because of diversification. The right choice depends on risk appetite.

Q4. How is PMS taxed compared to mutual funds?
In PMS, capital gains tax is applied individually based on your transactions. In mutual funds, tax applies to the entire pooled corpus. PMS offers more flexibility for tax planning.

Q5. Who should invest in PMS?
HNIs with investible surplus above ₹50 lakh, seeking personalisation, greater transparency, and higher return potential, should consider PMS.