Rich Investing: AIFs & PMS

Now, suppose you have built a major part of the financial pyramid, you are done with the foundation of insurance, you have created your savings layers, you own a piece of real estate, enough of gold, regular SIPs now what? Now what if you are left with a lump sum amount to invest? What options do you have now as an investor?

Same dilemma occurs to a 40-year-old Arjun, who now wants to take a leap in his investing journey. Arjun has a sound financial status, and he is willing to take risks. He dials a number saved as ‘financial consultant,’ Arjun asks, “I want to invest my money into PMS or AIFs. Could you please suggest some good investment strategies?”

Yes, this phone call will get you a masterclass on big ticket size investment options such as Portfolio management services (PMS) and Alternative investment funds (AIFs).

What is PMS?

Think of PMS as a personalised plan designed for high-net-worth individuals (HNIs) who are looking for personalised wealth management services. Now these people have a huge appetite, and they hold a huge corpus to invest to generate greater returns on their portfolio with higher risk.

PMS vs AIFs

There are various similarities when you look at PMS and Mutual Funds, both are professionally managed and have exposure to stocks. However, there are a few features of PMS which makes it different from Mutual Funds.

• Big Ticket Size- Now investing via PMS is no casual deal, you need to have a minimum corpus of Rs 50 lakh to invest through these services. This minimum investment was raised from Rs 25 lakh to Rs 50 lakh by Securities and Exchange Board of India (SEBI) in 2020 to filter out non-serious investors. On the other hand, Mutual Funds allow inclusive investment or investment by all with minimum investment of as low as Rs 100.
• Expense Ratio- Now this service is costlier than mutual funds, expense ratio or management fees can go upto as high as 3%. PMS also works on a profit-sharing model or performance linked fees where a certain amount of profit is paid to the PMS.
• Control to Fund Managers- In PMS you entrust professional fund managers with discretionary authority to execute trades(buy/sell) in your demat account based on your investment goals. While you can track performance provide inputs, the fund manager has the final say on investment decisions. In Mutual Fund you can take decision when to invest or redeem units.

What are AIFs

Now this is a totally different space of investing, it is more like a private club for sophisticated investors. AIFs accumulate money from these investors and invest in non-traditional assets like venture capital, hedge funds, private equity and start-ups. You must be imagining episodes of ‘Shark tank’ right, yes this is somewhat the same. Here, the investment increases to Rs 1 crore, and these are best suited for ultra-HNIs.

Notably, this category is not as regulated as mutual funds, but SEBI classifies them into three categories:

• Category l AIF: This category invests in early-stage ventures, start-ups, infrastructure and social impact businesses.
• Category ll AIF: This is an investment in private equity funds, debt funds and funds for distressed assets sale.
• Category lll AIF: This category of fund invests in complicated trading strategies and hedge funds and carries higher risks with higher returns.

Now this investment vehicle of AIFs has some bitter challenges apart from risk and high investments. Most AIFs have a lock-in period of 3 to 5 years or more which makes them highly illiquid. Their past performance is also not publicly available so choosing AIFs based on performance is a tough challenge.

Now this same lesson was given to Arjun over a phone call to make him realise that as your wealth grows, so do your options. PMF and AIFs investments are suited for those who need sophistication and a seat at the high-stake tables. These are exclusive investment vehicles, carrying bold returns, high risks and huge money of course.

SIF

Now before you find yourself out of this league, here’s a twist! To bridge a gap between mutual funds and PMS, SEBI introduced a specialised investment fund (SIF) which requires a minimum investment of Rs 10 lakh. Now this fund allows managers to execute advanced strategies like short selling along with targeted exposure to private equity and real estate as well. This opens the door for experienced investors who are below HNIs level and want to invest in a high-risk investment class.

To understand it better, expert advice from MINTIT can really help you to navigate these complex investment strategies. MINTIT, India’s only dedicated Mutual Fund Platform which caters to your personalised goals and accompanies you to achieve your financial milestones is eager to help you build your wealth. Depending on your profile it precisely suggests tailored investing plans to achieve your goals.

Happy! Investing