PMS & AIF, explained like you deserve
Beyond ₹50 lakh of investable capital, the question changes from "which fund?" to "which structure?". Here is what the structures actually offer, what they cost, and how we help you decide: before anyone asks you to commit.
By the time a company comes into mutual funds, most of its explosive growth is already behind it. PMS and certain AIFs can participate earlier in a company’s growth journey through specialised mandates, deeper research and access to opportunities beyond traditional mutual funds.
Portfolio Management Services (PMS)
A PMS is a professionally managed portfolio of securities held directly in your name: your demat, your shares, your dividends. A SEBI-registered portfolio manager runs a stated strategy on your account under a formal agreement. The regulatory minimum investment is ₹50 lakh.
- Ownership & transparency: you see every holding and every trade in your own account, no pooled NAV between you and your portfolio.
- Concentration & conviction: strategies typically hold 15–30 stocks, so outcomes can differ meaningfully from index funds: in both directions.
- Fees: fixed management fees, performance-linked fees, or hybrids. Fee drag at realistic return levels is a number we compute with you before you sign.
- Taxation: transactions in your account are taxed in your hands, like direct equity: which makes churn and strategy style a tax question, not just a return question.
Alternative Investment Funds (AIF)
An AIF is a SEBI-regulated pooled vehicle for strategies that don't fit inside mutual funds. The regulatory minimum commitment is ₹1 crore, and many funds are close-ended with multi-year horizons.
- Category I: venture capital, infrastructure and other policy-encouraged strategies.
- Category II: the largest bucket, spanning private equity, private credit, pre-IPO and structured strategies.
- Category III: long-short, hedged and other complex listed-market strategies.
- Liquidity is the price of access: lock-ins and drawdown schedules are normal. An AIF belongs only in capital you genuinely won't need mid-way.
- Taxation differs by category (pass-through for Categories I & II, fund-level taxation for Category III) and can change the net outcome materially.
Mutual funds vs PMS vs AIF: the honest comparison
| Mutual Funds | PMS | AIF | |
|---|---|---|---|
| Minimum | ₹500 | ₹50 lakh | ₹1 crore |
| Structure | Pooled units (NAV) | Securities in your name | Pooled fund units |
| Liquidity | High (open-ended) | Days to exit, per agreement | Often locked for years |
| Taxation | At redemption, unit level | In your hands, per trade | Varies by category |
| Best suited as | The core of every portfolio | Conviction equity on top of a funded core | Access to strategies markets can't offer retail |
Fixed, hybrid or variable: choosing how you pay
Most PMS strategies offer the same portfolio under two or three fee menus, and the menu you sign changes your net outcome as surely as markets do. The structures are simple; the judgement is in matching them to a year nobody can predict.
Fixed
Typical menu: 2.00 to 2.50% of portfolio value, every year.
One flat charge in good years, flat years and loss years alike. Fully predictable, completely blind to performance: you carry the risk of a mediocre year, and the manager is paid either way.
Hybrid
Typical menu: 1.00 to 1.75% fixed, plus 12 to 20% of profit above a hurdle of 8 to 12%.
A smaller certain charge plus a share of profit, but only above a threshold. The manager keeps the lights on, and earns properly only after you have earned first.
Variable
Typical menu: zero fixed, 15 to 20% of profit, often with a low hurdle or none at all.
Nothing certain, everything conditional: free in a loss year. But with no hurdle the share starts from the first rupee of gain, and in strong years this quietly becomes the costliest option.
The same ₹50 lakh, three kinds of year
One representative menu (Fixed 2.25%; Hybrid 1.75% plus 20% above a 12% hurdle; Variable 15% of full profit) applied to a ₹50 lakh portfolio across three illustrative market outcomes. The shaded cell is the lowest charge in each scenario.
| Year's outcome | Fixed | Hybrid | Variable |
|---|---|---|---|
| Strong year: +30%, portfolio ₹65 L | ₹1,46,250 | ₹2,35,000 | ₹2,25,000 |
| Ordinary year: +8%, portfolio ₹54 L | ₹1,21,500 | ₹94,500 | ₹60,000 |
| Loss year: 10% fall, portfolio ₹45 L | ₹1,01,250 | ₹78,750 | ₹0 |
Convention: the management fee and the hurdle are computed on the portfolio's year-end value; the profit share applies to the year's profit after the management fee and above the hurdle amount. Illustrative fee mechanics only, not a projection of returns.
No structure is cheapest everywhere; the year decides the winner. In sustained strong markets, Fixed keeps more of a large gain in your hands. In ordinary or sideways markets, performance-linked structures charge you little while delivering the same portfolio. In a falling market, Variable costs nothing while Fixed keeps charging on your capital. Since nobody signs knowing the year ahead, the honest way to choose is by temperament and conviction, not forecast.
Three questions that decide it
- Which loss hurts you more? If paying fees in a flat or losing year annoys you most, avoid pure Fixed. If handing over a slice of a great year annoys you most, avoid Variable with a low hurdle. If both sting equally, that instinct points to Hybrid.
- How convinced are you about the manager? A manager you genuinely expect to compound well above the hurdle, year after year, is cheapest on Fixed over time. An unproven or newly chosen manager deserves Hybrid or Variable: let the fee follow demonstrated skill, not precede it.
- What does the fine print say? Whatever you pick, three clauses decide fairness: a meaningful hurdle (10 to 12%, roughly what broad markets have historically delivered on their own), a high-water mark (no share charged on mere recovery of earlier losses), and no catch-up (a clause which, once the hurdle is crossed, applies the share to the full profit as if the hurdle never existed). Most houses offer all three; treat a schedule missing one as negotiable.
Our reading for most first-time PMS investors: Hybrid, with the lowest fixed leg and the highest hurdle on offer. It is cheaper than Fixed in every ordinary year, never takes a share from the first rupee the way a no-hurdle Variable does, and keeps the manager solvent enough not to swing for the fences. Fixed becomes worth revisiting only after several proven years, which is precisely when you will least want to renegotiate.
Across twenty-plus equity PMS fee schedules we compared recently, the level of fee showed no relationship with the return delivered: the best and worst performers charged nearly the same. Treat this page as a decision about how you pay, not what a manager is worth. Choose the manager on track record and process, choose the structure with the three questions above, and remember that PMS fees give no tax relief against your capital gains: every rupee charged is a full rupee gone.
Our role, and how we're paid
Prospar distributes PMS and AIF strategies through formal tie-ups with SEBI-registered portfolio managers and fund managers. We curate rather than catalogue: for each strategy we present, we lay out the investment thesis, the drawdown history, the fee mathematics at realistic returns, the exit mechanics, and the tax treatment, side by side with alternatives, in writing.
We are compensated by the providers through distribution arrangements, and we disclose this to you. Our discipline is simple: suitability first. PMS and AIF sit on top of a fully funded core (emergency reserves, insurance, goal-linked portfolios) never instead of it. If your foundation isn't ready, we'll tell you, and we'll help you build it first.
Eight questions we answer before you commit a rupee
- What is this strategy's edge, and why does that edge survive more money entering it?
- What did its worst 12 months look like, and would you have stayed invested through them?
- What do fees do to your net return at ordinary (not brochure) performance levels?
- How concentrated is it, and what single mistake would hurt most?
- What exactly happens when you want out: notice, charges, timelines, market impact?
- How is it taxed in your hands, this year and at exit?
- Who is the custodian, and what is independently verified?
- What would make us recommend exiting it later?
This page is educational and does not constitute investment advice, an offer, or a solicitation of any product. PMS and AIF investments are subject to market risks and regulatory minimums (₹50 lakh / ₹1 crore respectively) prescribed by SEBI; past performance of any strategy is not indicative of future results. Product distribution is undertaken through formal arrangements with SEBI-registered providers; Prospar may receive distribution remuneration, which is disclosed to clients. Please read all offer and disclosure documents carefully before investing.