Why the Mutual Fund Selection Approach May Not Work for PMS ?
For years, investors have learned a familiar way of selecting mutual funds: check ratings, compare 1-year/3-year/5-year returns, look at AUM, study expense ratios, and pick the best-performing scheme.
That approach may be useful for retail mutual fund investing. But applying the same selection process to Portfolio Management Services (PMS) may be a mistake.
The reason is simple: PMS is not just a bigger-ticket mutual fund. It is a different investment proposition altogether.
₹50 Lakh Deserves a Different Selection Process
The minimum investment in a PMS is ₹50 lakh. At this level, the question should not simply be:
“Which PMS has given the highest return?”
The better questions are:
- What role will this PMS play in my overall portfolio?
- What is the investment philosophy of the manager?
- How concentrated is the portfolio?
- What kind of drawdown has the strategy experienced?
- How has it behaved when markets have fallen?
- Is the benchmark appropriate for the strategy?
- Are returns consistent with the risks being taken?
- Does the strategy complement my existing investments?
This changes PMS selection from product shopping to portfolio construction.
Don't Select PMS Through a Retail Ranking Mindset
A PMS with the highest 1-year return need not necessarily be the right PMS for an investor.
Consider two hypothetical strategies:
| Parameter | PMS Alpha | PMS Beta |
|---|---|---|
| 3-Year Annualised Return | 22% | 19% |
| Maximum Drawdown | -28% | -16% |
| Downside Capture | 110% | 72% |
| Portfolio Stocks | 15 | 25 |
| Investment Style | Aggressive Growth | Quality Growth |
Looking only at returns, PMS Alpha appears better.
But an investor who values downside protection, lower volatility and greater consistency may actually find PMS Beta more suitable.
Therefore, best-performing and best-suited are not necessarily the same thing.
AUM Is Also Not the Answer
Investors often associate a large AUM with a better investment product. That logic needs to be used carefully in PMS.
A strategy managing ₹5,000 crore is not automatically superior to one managing ₹500 crore.
In fact, depending on the investment strategy, a smaller and more agile portfolio may sometimes offer the manager greater flexibility in entering and exiting investment opportunities.
AUM tells you the size of the strategy. It does not tell you the quality of the strategy.
PMS Selection Should Start With the Investor
Instead of starting with a list of PMS strategies, start with the investor.
Investor → Risk Profile → Existing Portfolio → Investment Objective → Suitable Strategy → PMS Manager
For example, an investor already holding substantial large-cap mutual funds may not need another large-cap-oriented PMS merely because it has performed well.
A differentiated PMS focusing on mid-caps, special situations, concentrated quality businesses or another complementary investment style could potentially make more sense—provided it fits the investor's risk profile.
This is where asset allocation and portfolio fit become more important than rankings.
Move From Return Analysis to Risk-Adjusted Analysis
PMS evaluation should therefore go deeper than CAGR.
Investors and advisers should examine parameters such as Information Ratio, Downside Capture Ratio, Maximum Drawdown, volatility, portfolio concentration, benchmark-relative performance and consistency across market cycles.
The objective is not merely to understand how much money the manager made, but also:
“What level of risk was taken to generate that return?”
₹50 Lakh Is an Allocation Decision, Not a Product Purchase
This is perhaps the biggest mindset change required.
When an investor commits ₹50 lakh or more to PMS, the decision should not be treated like selecting another investment scheme from a ranking table.
It is an important allocation of personal wealth.
The right PMS is therefore not necessarily:
The PMS with the highest return.
It is:
The PMS whose investment philosophy, risk, portfolio construction and expected behaviour fit the investor's overall wealth strategy.
The PMS Insights View
Mutual funds can often be shortlisted as products. PMS needs to be evaluated as a portfolio strategy.
Don't ask only:
“Which PMS is No. 1?”
Ask instead:
“Which PMS is right for my portfolio—and why?”
That one change in approach can make PMS investing far more informed, disciplined and investor-centric.
Disclaimer: This content is for educational and informational purposes only and should not be construed as investment advice or a recommendation of any particular PMS strategy. Investors should evaluate their risk profile, financial objectives and suitability before investing.