How mutual fund-based portfolio management services work
Subscribe to enjoy similar stories.Once seen as competition to mutual funds, portfolio management services (PMS) providers are increasingly using them as building blocks. They are offering curated mutual fund (MF) portfolios to high-net-worth individuals (HNIs) who want the simplicity of MFs combined with professional, end-to-end portfolio management and execution.
The typical investor profile: new-age entrepreneurs and senior corporate executives.The shift has a clear tax rationale. Budget 2024's hike in short-term capital gains (STCG) tax on equities — from 15% to 20% — hit traditional stock-based PMS providers hard, particularly those running high-churn portfolios.
Mutual fund-based PMS-es, with their structurally lower portfolio turnover and more tax-efficient structure, are positioning themselves as an alternative.Since MFs have a pass-through tax status, investors in a mutual fund PMS are taxed only when they redeem units — not every time the fund trades the underlying stocks.Here is how mutual fund-based PMS-es work. To be sure, some of the PMS providers also offer other asset classes to give investors a more diversified portfolio.Unlike traditional PMS, which involves direct stock ownership, mutual fund PMS builds and manages portfolios entirely — or predominantly — through mutual fund schemes.
Read on livemint.com