You may have seen influencers or wealth managers promoting Portfolio Management Services, often called PMS, as a quicker and smarter way to earn high returns. The idea sounds appealing. Your money is handled by professional managers who make investment decisions just for your portfolio. It feels more personal than mutual funds and gives the impression of better control and higher profits.
However, before putting a large sum of money into PMS, it is important to understand whether it is actually suitable for you. PMS can sometimes deliver strong returns, but they also come with several risks and drawbacks that many investors only realise after investing.
What exactly is PMS?
Portfolio Management Services are investment products where a professional fund manager invests your money directly into stocks or other assets on your behalf. Unlike mutual funds, where investors pool money together, PMS portfolios are maintained separately for each investor. This means the gains, losses, and taxes are all recorded at an individual level.
The fund manager actively buys and sells stocks based on their strategy, with the goal of generating higher returns than the market. While this sounds attractive, the structure of PMS creates certain risks that are not always obvious at first.
High minimum investment requirement
One of the biggest barriers to PMS is the high starting amount. To invest in PMS, you usually need a minimum of ₹50 lakh. This is far higher than what is required for mutual funds or direct stock investments.
Because such a large amount is invested at once, the risk is also concentrated. If the PMS portfolio performs poorly, a significant portion of your wealth can be impacted. Unlike mutual funds, where money is spread across thousands of investors, PMS losses are felt fully and directly by the individual investor.
No upper limit on PMS fees
Another major concern with PMS is the cost structure. There is no upper limit on how much PMS providers can charge as fees. Most PMS follow one of three models: fixed fees, performance-based fees, or a combination of both.
Typically, investors pay an annual management fee of around 1% of the invested amount, regardless of performance. On top of this, many PMS also charge a performance fee, usually 10% to 20% of profits earned above a certain level, known as the hurdle rate.
For example, if you invest ₹50 lakh and earn a 12% return in one year, your total profit is ₹6 lakh. You may pay around ₹50,000 as a management fee. If the hurdle rate is 8%, the extra return is 4%, or ₹2 lakh. If the performance fee is 20%, another ₹40,000 goes towards fees. In total, you pay ₹90,000 in fees, leaving you with a net profit of ₹5.1 lakh instead of ₹6 lakh.
Over time, these fees can significantly reduce long-term returns.
Tax inefficiency compared to Mutual Funds
Taxation is another area where PMS can work against investors. In PMS, every time the fund manager sells a stock in your portfolio, it is considered your personal transaction. If the stock is sold within one year, the profit is taxed as short-term capital gains at 20%.
This means frequent buying and selling by the PMS manager can create repeated tax liabilities for you. In contrast, mutual fund investors are not taxed when the fund manager trades within the fund. Taxes apply only when the investor redeems their mutual fund units.
For instance, if you invest ₹50 lakh through PMS and sell the portfolio after 8 months for ₹60 lakh, the ₹10 lakh profit is taxed as short-term capital gains. This results in a tax outgo of ₹2 lakh. Over long investment periods of 10 to 15 years, this tax difference can become very large and significantly impact overall returns.
Performance risks and market reality
Many PMS schemes claim they can consistently beat market returns. However, real-world data paints a different picture. Research published by 1 Finance magazine shows that a large number of PMS schemes underperform the Nifty 50 TRI.
The study found that about 70% of the identified PMS schemes benchmark themselves against the Nifty 50 TRI, even though many of them invest in mid-cap and small-cap stocks rather than large-cap stocks. This creates misleading performance comparisons.
When performance was compared with flexi-cap mutual funds, the results were not encouraging. Over a three-year period, around 42% of PMS assets under management and 50% of PMS schemes delivered returns lower than the average flexi-cap mutual fund. Over five years, 35% of PMS assets and 47% of PMS schemes underperformed flexi-cap mutual funds.
In simple terms, nearly half of PMS schemes failed to beat regular mutual funds that are cheaper, more liquid, and easier to invest in.
SEBI action on misleading PMS advertising
Regulatory concerns around PMS have also increased. In June 2025, SEBI directed all PMS providers to stop using exaggerated or misleading advertisements. SEBI found that some PMS firms were making unrealistic claims about their past performance and investment skills on social media and websites. These claims created the impression that high returns were guaranteed, which can mislead investors.
This action highlights the importance of being cautious and not relying only on marketing claims.
Liquidity issues and exit costs
Exiting a PMS investment is not as simple as selling a mutual fund. When you want to withdraw money, the PMS provider first needs to sell the stocks in your portfolio. The time taken depends on market conditions and how easily those stocks can be sold.
Most PMS also require a notice period before withdrawal. There may be minimum withdrawal limits, often ₹1 lakh or more, making it difficult to withdraw small amounts when needed.
Exit loads in PMS are generally higher than mutual funds, usually ranging from 1% to 3%, in addition to ongoing management and performance fees. This makes PMS particularly expensive if you need to exit early.
To sum up
While Portfolio Management Services may offer unique investment strategies, they are not suitable for everyone. High minimum investments, high and uncapped fees, tax inefficiency, liquidity issues, and inconsistent performance make PMS a risky choice for many investors.
Instead of relying on marketing claims, investors should carefully compare PMS with simpler and more transparent options like mutual funds. Before investing a large amount, it is always wise to speak with a Qualified Financial Advisor who can help determine whether PMS fits your financial goals, risk tolerance, and overall investment plan.
