The investment market in India has come a long way from traditional fixed deposits to high-growth equity funds and private equity plans. For investors with bigger goals and a higher risk appetite, there’s no shortage of options anymore. Among all the choices available today, Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) are the go-to choices for many. They both are structured to offer access to customised strategies and less conventional asset classes, especially if you’re looking beyond mutual funds and traditional avenues.
We’ve already discussed how AIFs in India function and what portfolio management services bring to the table in earlier posts. In this one, let’s put them side by side. By comparing PMS vs. AIF across lock-in, investor profiles, and minimum amount, we’ll help you understand both options for your investment journey.
Portfolio management services are often preferred by high-net-worth individuals, but are not limited to them. The portfolio manager takes care of portfolio diversification, rebalancing, and asset allocation, so that you don’t have to track every market move yourself.
From a tax perspective, a PMS is a pass-through structure. Since the investments are held in your name, you pay capital gains tax according to your income slab. For example, equity capital gains are taxed at 20 percent for short-term holdings (less than 1 year) and 12.5 percent for long-term holdings (more than 1 year), with an exemption of ₹1.25 lakh.
Tax efficiency is a crucial factor in comparing PMS vs. AIF. Category I and II AIFs enjoy pass-through benefits, as for Category AIFs, tax is paid at the fund level, at a rate of 9 percent for non-residents. From the next financial year, AIF returns will be considered capital gains, subject to a tax rate of 5 percent.
First Published: Jul 11, 2025, 15:53
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