Portfolio Management Services

The single structural difference between PMS and a Category III AIF is ownership.

In a PMS, the client owns every security the portfolio manager buys. There is no pooling: each client has their own demat account, their own holdings, their own portfolio shaped to their own objectives. The manager acts on that account.

In a Category III AIF, investors own units of a fund. The fund owns the securities. Pooling is compulsory and trading happens only at pooled level.

Everything else that distinguishes the two — thresholds, caps, lock-ins, leverage — follows from that one fact.

PMS comes in two forms. In a discretionary PMS the portfolio manager is empowered to take investment decisions on the client's behalf. In a non-discretionary PMS the manager executes what the client decides. Both are governed by the SEBI (Portfolio Managers) Regulations, not the AIF Regulations.

The workbook's comparison, point by point:

Note the inversion in that last row. PMS regulates the manager's balance sheet; the AIF regime regulates the manager's skin in the game.

An investor has Rs 5 crore to allocate and is choosing between the two.

Through a PMS:

Minimum ticket        Rs 50,00,000  → Rs 5 crore can be split across
                                       several PMS strategies if wanted
Ownership             Securities sit in the investor's own demat account
Exit                  Any time; no lock-in
Leverage              Not available

Through a Category III AIF:

Minimum ticket        Rs 1,00,00,000
Ownership             Units of the fund; the fund owns the shares
Exit                  Lock-in if close-ended; stated frequency if open-ended
Leverage              Up to 2× NAV

Now the part that decides it. The AIF is a pooled vehicle set up as a trust, so its business income is taxed at MMR inside the fund — see Maximum Marginal Rate. On Rs 1 crore of derivatives gains:

At fund level: Rs 1,00,00,000 × 39.00% = Rs 39,00,000 of tax,
               borne by every unit holder pro rata, whatever
               that unit holder's own tax position happens to be.

A charitable trust, a loss-making company and an individual in the lowest slab all pay at the same rate through the fund. In a PMS, where the investor owns the securities directly, no such pooled charge arises — which is why the choice between the two is as much a tax question as a strategy question.

Chapter 3, section 3.5.1 (Category III AIFs vs Portfolio Management Services) carries Table 3.1, and the table is examined line by line. Expect direct figure questions — minimum investment in a PMS (Rs 50 lakh), minimum corpus for a PMS (none), portfolio manager net worth (Rs 5 crore), investor cap in a Category III AIF (1,000) — and conceptual questions on pooling and ownership. A recurring True/False asks whether exit load can be charged to Category III AIF investors but not to PMS investors.

• PMS investors own securities; AIF investors own units. Every other difference follows from this, and it is the answer to most conceptual questions in the section.
• Rs 50 lakh is the PMS minimum; Rs 1 crore is the Category III AIF minimum. The pair is designed to be swapped in the options.
• A PMS has no minimum corpus at all — the workbook says one client is enough to start. Do not carry the Rs 20 crore AIF figure across.
• The Rs 5 crore figure is the portfolio manager's net worth, not a client minimum and not a corpus. And a Category III AIF manager has no net worth criterion — it has a continuing-interest obligation instead.
• The 1,000-investor cap is an AIF rule. PMS has no upper cap on clients.
• Discretionary versus non-discretionary is about who decides, not about who owns. The client owns the securities either way.