About 79% of PMS approaches have beaten the respective benchmark and mutual funds over 10 years

While Portfolio Management Services (PMS) and Mutual Funds offer avenues for investment and growth, their clientele and approaches differ. PMS, a bespoke suit for High Net-Worth Individuals (HNIs) and Ultra-HNIs, comes with Rs. 50 lakh minimum investment and tailors portfolios to individual needs. Mutual funds, on the other hand, cater to a broader audience with minimal investments as low as Rs. 100, pooling investments to create ready-made portfolios accessible to all.

So, comparing the two options head-to-head isn't entirely fair. They cater to distinct financial needs and risk appetites, providing valuable information for investors seeking high-performing options. Yet, investor curiosity often seeks parallels. With that in mind, PMS Bazaar conducted a study comparing the performance of PMS and mutual funds against their respective benchmarks, across various categories and timeframes. For this purpose, 335 PMS investment approaches within the PMS Bazaar universe and 388 mutual funds schemes via regular as well as direct modes, as per AMFI, were considered. The study was conducted across 7 market categories including largecap, midcap, smallcap, large-midcap, multicap, flexicap, and thematic. The time frames taken into consideration for the study of both PMS and mutual funds are 1, 3, 5 and 10 years up to 31 December 2023. 

The goal of the study? To shed light on which investment models have consistently bested their benchmarks over time. So, before contemplating which investment avenue fits your needs, remember, that understanding investment objectives, risk tolerance, and minimum investment comfort is crucial.

Keep in mind that past performance is not always indicative of future results. Diversification and a long-term approach are key to any successful investment strategy.

PMS and MF: How was their performance?

The Indian market, despite market volatility like the 2020 COVID plunge and the 2016 liquidity crisis, has soared over the past decade. The Nifty 50 has tripled in value in the past decade. This upswing has naturally benefitted both PMS and mutual funds, generating substantial returns for investors. A study by PMS Bazaar analyzed 335 PMS investment approaches and 388 mutual funds (regular) across 1, 3, 5, and 10-year periods. The study reveals that PMS investment approaches outperformed their benchmarks by an impressive 70% on average across all timeframes and categories, while mutual funds managed a respectable 48%.

Interestingly, when comparing PMS to mutual funds, PMS investment approaches consistently outperformed mutual funds across all timeframes. For example, in the 5 years, 59% of PMS investment approaches outperformed their benchmarks compared to just 46% of mutual funds. This trend continued in the 3-year and 10-year periods, with PMS consistently delivering superior benchmark-beating returns.

Category-wise performance

For comparison, PMS and mutual funds were assessed across market cap categories like large, mid, small, large-mid, flexi cap, multicap and thematic. While both outperformed their benchmarks in all categories and timeframes, some stood out. During the 3-year window, barring the thematic category, PMS outperformed benchmark and mutual funds across all the categories. The PMS smallcap approaches thrived, exceeding the benchmark by a whopping 91% compared to mutual funds' 41%. Midcap PMS also shone, surpassing the benchmark by 84% compared to just 17% of mutual funds. Similar dominance was seen in the large, large-mid, multi and flexi cap categories in the 3-year time frame.

However, the tables turned in the Thematic category where mutual funds outperformed benchmark and PMS investment approaches by 59%. But the thematic PMS approach was 36%. The table below details where PMS investment approaches and MF have outperformed.

In the one-year period, all the PMS investment approaches have outperformed their benchmark and mutual funds across all the categories.

In the 3-year period, 6 of 7 PMS investment approaches have outperformed their benchmark and mutual funds across all the categories.

In the 5 years, too PMS investment approaches were dominating in 5 of the 7 categories including large, mid, small, flexi and multi-cap categories. But in the large-mid and thematic categories, mutual funds had the upper hand.

The highlight was that in the 10 years, all the PMS investment approaches have outperformed mutual funds and benchmarks.

NA: Not applicable. In PMS, there is no performance from Thematic PMS investment approaches for the 10-year period.

Source: PMS Bazaar, AMFI; Note: Value and Focused mutual funds are considered under the Flexi-cap category. All data as on Dec 31, 2023

How did direct mutual funds fare?

While this study focuses on comparing PMS and traditional mutual funds, a quick detour to direct mutual funds reveals they have carved their own path to outperformance. Across all seven categories and timeframes, direct funds generally shine brighter than their regular counterparts.  However, a deeper analysis shows a nuanced picture. In the one-year period, PMS led with 86% outperformance compared to 60% for direct funds. But in the three-year period, both PMS and direct funds outperformed benchmarks by 58%. On the other hand, during the five-year period, direct mutual funds took the lead with 62% outperformance, while PMS lagged at 59%. And in the long-term of 10 years, PMS emerged as the winner, boasting 79% outperformance against 65% for direct funds and the benchmark. 

TOP PERFORMERS

Over 1, 3, 5, and 10 years, PMS investment approaches consistently outperformed their benchmarks and (regular) mutual funds. In the three-year window, 6 in 10 PMS investment approaches beat the benchmark compared to only 5 in 10 mutual funds. A similar trend was seen in the five-year period as well. Lastly, over 10 years, a staggering 8 in 10 PMS investment approaches surpassed the benchmark, while only 5 mutual funds managed the feat. However, in the one-year period, a remarkable 9 in 10 PMS investment approaches, while it was only 5 in 10 mutual funds that beat the benchmark.

Here are the top 10 performers in PMSes and Mutual Funds across all categories for 1-year:

Here are the top 10 performers in PMSes and Mutual Funds across all categories for 3-years:

Here are the top 10 performers in PMSes and Mutual Funds across all categories for 5-years:

Here are the top 10 performers in PMSes and Mutual Funds across all categories for 10-years:

Source: PMS Bazaar, AMFI; 3,5,10 years returns are compounded; All data as on Dec 31, 2023

Disclaimer: 

PMS investment approaches within the PMS Bazaar universe and data for mutual fund schemes are from AMFI are considered for the story. Any information contained in this material shall not be construed as advice, solicitation or inducement to invest in any portfolio/approaches/mutual fund schemes of the Portfolio Manager. The names of the approaches/portfolios/mutual fund schemes do not, in any manner, indicate their prospects or returns. There is no assurance or guarantee that the objective of the portfolios/approaches/mutual fund schemes will be achieved. Past performance is not necessarily a guide to future performance and in no way guarantees future performance. Investment in the securities market is subject to market risks, you are requested to read all the related documents carefully before investing. Investors are responsible for their investment decisions and are responsible for validating all the information used to make the investment decision. No content of this material including the performance-related information is verified by SEBI nor has SEBI Certified the accuracy or adequacy of the same.