Mutual funds vs PMS and SIFs: how they differ

A mutual fund pools many investors' money into one portfolio and gives you units. A portfolio management service (PMS) has a SEBI-registered portfolio manager invest at least ₹50 lakh in a demat account in your own name. A Specialised Investment Fund (SIF) is a kind of mutual fund scheme SEBI created in 2025 for the gap between the two. Its minimum is ₹10 lakh.

Which one fits depends on how much you invest, how much say you want and how you want tax to work. This page compares the three on SEBI's rules. It does not pick one. If you are new to funds, start with what a mutual fund is. Alternative investment funds are covered in mutual funds vs hedge funds.

How are mutual funds, PMS and SIFs different?

They differ most in who owns the investments and how much you need to start. In a mutual fund and a SIF you own units of a pooled scheme. In a PMS you own the shares themselves, held in an account opened for you.

The PMS and SIF minimums do not apply to an accredited investor. That is someone who meets SEBI's eligibility criteria and holds a certificate from an accreditation agency.

What is a PMS?

A PMS is a service where a SEBI-registered portfolio manager runs your money in a demat account in your name. The manager acts under a power of attorney. A demat account is the account in which your shares are held. The power of attorney is a document you sign that lets the manager make investment decisions on your behalf.

No one may act as a portfolio manager without a SEBI registration certificate. Every manager must give you its registration number when you sign, and SEBI tells investors to check the status on its website.

SEBI's investor charter describes three kinds of service:

• Discretionary: investment decisions are at the sole discretion of the PMS provider, in line with your investment objectives.
• Non-discretionary: the decisions are taken at your discretion.
• Advisory: you are advised on what to buy and sell, and the adviser takes no responsibility for trade execution, custody or accounting.

To start, a manager cannot accept less than ₹50 lakh from a new client. You can bring it as cash, as shares you already own, or both. Some managers ask for more.

What is a SIF?

A SIF is a mutual fund scheme of a special kind. SEBI created it from 1 April 2025 to fill the gap between ordinary mutual funds and PMS.

SEBI's rules let only some fund houses launch one. A fund house must pass a track-record test or a fund-manager experience test. It must have no SEBI action against it in the last three years, and it needs SEBI's approval. Each SIF carries a distinct brand name and logo, separate from the fund house's regular mutual funds.

You need at least ₹10 lakh across all of one SIF's strategies, counted at the PAN level. Investments in the same fund house's regular mutual fund schemes do not count towards it.

What sets a SIF apart is that it may bet against shares or bonds, up to 25% of its money. That is a short position, a bet that a share or bond will fall. SEBI groups the strategies into equity, debt and hybrid.

Its risk is shown on a five-level risk band, from level 1 (lowest) to level 5 (highest), checked every month. Its offer document is called an Investment Strategy Information Document.

A fund house may offer a SIP, SWP or STP in a SIF. Your total must still stay at or above ₹10 lakh. If your own sale takes the total below that, your units are frozen. You then get 30 calendar days to top up, or the units are redeemed automatically. A fall caused only by the market is not a violation, but you can then redeem only the whole remaining amount.

Koshex distributes Specialised Investment Funds as well as mutual funds. The list is on Koshex's scheme documents page.

How much do you need to start?

SEBI sets no minimum for a mutual fund, ₹10 lakh for a SIF and ₹50 lakh for a PMS. Each fund sets its own floor. One fund house's scheme document shows a SIP from ₹100, with at least six instalments.

The PMS floor is for the first investment, in one lump sum.

Take Rohan, who has ₹60 lakh from selling a plot. That clears the PMS minimum of ₹50 lakh and the SIF minimum of ₹10 lakh.

Who owns the investments, and how much say do you get?

In a fund or a SIF you own units and the fund house chooses the holdings. In a PMS the shares are in your name, and in a non-discretionary service you make the final call.

A unit is one undivided share in a scheme's assets. Its price is the NAV. A trustee company holds the money and investments for unitholders and oversees the fund house.

Unitholders still have rights. If a fund changes a fundamental feature, you must get written notice and a chance to exit at NAV with no exit load. A 75% vote of unitholders can wind up a scheme or end the fund house's appointment.

A PMS keeps your account apart. The manager must hold each client's funds and securities separately from its own, and may not hold your securities in its own name. Every manager except an advisory one must appoint a custodian, a firm that keeps the securities. An independent chartered accountant audits the manager every year, and you may appoint your own.

How do the costs compare?

A mutual fund's costs come out of its NAV within SEBI's caps. A PMS charges the fee in your agreement, plus brokerage and other running costs.

A fund's yearly fee is the expense ratio, a percentage of your money taken out of the fund's value. SEBI caps it at 0.90% for an index fund or ETF, and there is no entry load. Expense ratio and mutual fund charges have the detail.

In a PMS, the manager may charge a fixed fee, a fee based on returns, or both. No upfront fee is allowed, and a manager may not promise any return. Brokerage is charged at actual cost, and other operating costs are capped at 0.50% a year of your average daily assets.

A performance fee follows the high-water-mark rule: a fee only on gains above the highest value the portfolio has reached before. SEBI's own example: a portfolio of ₹50,00,000 rises to ₹60,00,000, so the fee is on ₹10,00,000. It falls to ₹55,00,000 with no fee, then rises to ₹65,00,000, and the fee is only on ₹5,00,000.

Both can charge you for leaving early. A mutual fund's exit load, a fee for selling within a set time, is at most 3% of the NAV. A PMS can charge up to 3% of the amount redeemed in the first year, 2% in the second and 1% in the third. After three years there is no exit load.

How is each one taxed?

A mutual fund's own trades are not taxed in your hands, so you pay only when you sell your units. In a PMS held as an investment, each sale in your account is your capital gain, or profit on a sale, that year. SIF units are taxed like mutual fund units, strategy by strategy.

An equity-oriented fund has at least 65% in domestic listed shares on an annual average. A gain on its units sold within 12 months is taxed at 20%. After that, the rate is 12.5% on gains above ₹1,25,000 in a tax year. Debt (Specified Mutual Fund) units bought on or after 1 April 2023 are taxed at your slab rate whatever the holding period. A 4% cess is added in each case. How SIP returns are taxed walks through the rates.

If you hold the portfolio as an investment, the rates match shares you trade yourself, when securities transaction tax has been paid. That tax is charged when you buy or sell shares on an exchange, and when you sell units of an equity fund. Dividends are added to your income.

The ₹1,25,000 allowance is one per person per tax year. It is shared across equity-oriented fund units and listed shares.

Here is the difference in rupees. Rohan holds a PMS portfolio as an investment. The manager sells listed shares held for 8 months at a gain of ₹3,00,000, with securities transaction tax paid. That is Rohan's short-term gain. The tax is ₹3,00,000 × 20% = ₹60,000, plus 4% cess of ₹2,400, a total of ₹62,400 before any surcharge. If an equity fund he holds makes the same trade, he owes nothing until he sells his own units.

For a SIF, what matters is how much of each strategy sits in Indian shares. Check the strategy's own document.

How quickly can you get your money out?

A mutual fund pays redemption money within 3 working days (5 for funds that invest mostly abroad). A SIF pays on its strategy's redemption days, and it can make you wait up to 15 working days. A PMS settles under your agreement.

If a fund is late, it owes you interest at 15% a year for the delay.

Equity strategies must allow redemption daily or less often. Debt strategies must allow it once a week or less often, and hybrid ones twice a week or less often. If a strategy sets a notice period, it cannot exceed 15 working days, and you get the NAV at the end of it.

When a PMS contract ends, the manager must give you a detailed statement of accounts. SEBI's charter says the securities and funds in your account are then transferred to your verified bank and demat accounts.