Why AUM Is Not the Right Way to Judge a Portfolio Management Service (PMS)
When investors compare Mutual Funds, one of the first things they often look at is the Assets Under Management (AUM). A large AUM in a Mutual Fund usually indicates investor confidence and can also help reduce costs through economies of scale.
However, the same logic should not be applied to Portfolio Management Services (PMS).
Why?
A PMS is not a pooled investment product like a Mutual Fund or most AIFs. In a PMS, every investor has a separate demat account and bank account. The portfolio manager makes investment decisions, but the securities are held in the individual investor's name.
This makes PMS very different from a common investment pool.
What Does AUM Mean in PMS?
PMS AUM simply represents the total value of assets managed by the portfolio manager across all clients.
It does not necessarily indicate:
- Better investment performance
- Better portfolio quality
- Better stock selection
- Better suitability for your financial goals
A PMS with ₹500 crore AUM may deliver excellent long-term returns, while another with ₹10,000 crore AUM may underperform—or vice versa.
A Simple Example
Imagine two experienced doctors.
- Doctor A treats 500 patients.
- Doctor B treats 5,000 patients.
Does that automatically mean Doctor B is a better doctor?
Not necessarily.
You would still evaluate their experience, diagnosis, treatment approach, success rate, and whether they are the right fit for your needs.
The same principle applies to PMS.
What Should Investors Focus On Instead?
Instead of looking only at AUM, investors should evaluate:
- Investment philosophy and process
- Consistency of long-term performance
- Risk management approach
- Portfolio construction and diversification
- Fund manager's experience
- Performance across different market cycles
- Transparency and communication
- Whether the strategy matches your financial goals and risk profile
These factors provide a much better picture of the quality of a PMS than its AUM.
Final Thoughts
AUM is an important statistic, but it should be viewed as an operational number, not an investment quality indicator in the case of PMS.
A successful PMS is not the one managing the largest amount of money—it is the one that manages your money with discipline, consistency, and a clear investment philosophy aligned with your long-term objectives. Check our RIGHT PMS framework for more !!
Remember: In PMS, choose the investment process, not the asset size.