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AIF and PMS Investment- Meaning, Difference and Examples

4 Mins 27 May 2024 0 COMMENT
PMS Vs AIF Investment

When it comes to inflation-beating investment options in India, one of the most popular options today is mutual funds. Mutual funds have been around for a long - do you know that the mutual fund industry was set in 1963 with the launch of the Unit Trust of India (UTI)? 

Initially, it was only for institutional investors. Over the years, the industry paved the way for private-sector mutual funds to enter the market, increasing competition and product diversification. Today, the Indian mutual fund industry boasts a robust presence with over Rs 57.26 lakh crore in Assets Under Management (AUM) and caters to a diverse investor base. 

As an investor, if you are looking for other investment options in India - you may consider PMS and AIF investment. Even before we begin, we want to clarify that, unlike mutual funds, these are not for everyone. So, what are they, and to whom these options are suitable? We answer all your questions about these two terms in this article.

What is AIF?

An Alternate Investment Fund (AIF) is a collective investment vehicle that pools funds from sophisticated investors and invests them in assets outside the traditional categories of stocks, bonds, and cash. These alternative assets can offer potentially higher returns but also come with higher risks compared to traditional investments.

Different categories of AIF with fund examples

Here are the different categories of AIF:

Category I AIFs: Focus on Growth-Oriented Assets

These AIFs invest in businesses with high growth potential. They target startups, unlisted companies, and small and medium enterprises (SMEs).

Examples include venture capital funds like Sequoia Capital India and Kalaari Capital.

Category II AIFs: Broader Investment Strategies

This category encompasses a wider range of investment strategies. They can invest in various assets but employ strategies that are more complex compared to Category I AIF Examples include Private Equity Funds like KKR India and Carlyle Asia Partners.

Category III AIFs: Complex Investment Strategies

These AIFs employ the most complex investment strategies and often invest in derivative instruments. They are suitable for highly sophisticated investors who can tolerate a significant degree of risk.

Examples include angel funds like Mumbai Angels and Chennai Angels (although some Angel Funds might fall under Category I) 

Regulatory environment for AIF investment

After mutual funds, AIF has been gaining significant popularity in recent years.To ensure investor protection and maintain market stability, the Securities and Exchange Board of India (SEBI) regulates AIFs through the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations).

As mentioned earlier, AIFs are not suitable for a large percentage of retail investors due to the higher risks involved.SEBI regulations define minimum investment amounts and eligibility criteria for investors based on their net worth and investment experience.

  • Category I and II AIFs: Typically require a minimum investment of Rs 1 crore. These AIFs might be accessible to some high-net-worth individuals (HNIs).
  • Category III AIFs: Have a higher minimum investment threshold and are targeted toward sophisticated investors like institutional investors and family offices.

The AIF Regulations also specify the types of assets AIFs can invest in based on their category as we have seen in the previous section. It helps ensure a certain level of risk management and protects investors from overly complex strategies.

What is PMS?

Portfolio Management Services (PMS) is another service which is for HNIs. It is a customized investment management service offered by professional portfolio managers or investment firms to manage the investment portfolios of high-net-worth individuals (HNIs) and institutional investors. PMS providers design and manage investment portfolios tailored to the specific investment objectives, risk tolerance, and financial goals of their clients.

PMS providers offer personalized investment solutions tailored to the unique needs and preferences of individual clients.Portfolio managers work closely with clients to understand their investment objectives, risk appetite, time horizon, liquidity needs, and tax considerations.

PMS providers offer a range of investment strategies and styles to meet the diverse needs and preferences of clients. These strategies may include growth-oriented strategies, value investing, income generation, capital preservation, sector-specific themes, and tactical asset allocation based on market conditions.

Regulatory environment for PMS

SEBI acts as the primary regulator for PMS providers in India. They set forth the broad regulatory framework and guidelines for PMS operations.

While not a regulatory body, the Association of Investment Managers and Advisors (AIMA) is a self-regulatory organization (SRO) that establishes professional and ethical standards for investment advisors, including PMS providers.

Unlike AIFs, with their high minimum investment requirements, PMS can cater to a wider range of investors. However, SEBI regulations often mandate a minimum investment amount for availing PMS services. It ensures a certain level of sophistication among investors who understand the inherent risks of personalized investment strategies.

Difference between AIF and PMS

Here are the key differences between AIF and PMS:


Alternative Investment Funds (AIFs)

Portfolio Management Services (PMS)

Growth in Indian Market

AIFs have witnessed significant growth in India, driven by increasing investor interest in alternative asset classes and regulatory reforms promoting the AIF industry.

PMS has also experienced growth in India, with demand from high-net-worth individuals (HNIs) seeking personalized investment management services and customized portfolios.


AIFs have evolved as regulated investment vehicles in India, offering exposure to diverse alternative asset classes such as private equity, hedge funds, real estate, and infrastructure.

PMS has evolved as customized investment management services offered by registered portfolio managers to affluent investors, providing discretionary portfolio management and personalized investment solutions.

Role of SEBI

AIFs in India are regulated by the Securities and Exchange Board of India (SEBI), which sets regulatory frameworks, registration requirements, and compliance standards for AIF managers and investors.

PMS providers are regulated by SEBI under the SEBI (Portfolio Managers) Regulations, which govern the registration, conduct, and operations of portfolio managers offering PMS in India.

Role of People

AIF managers are professional investment firms or fund managers with expertise in alternative asset classes, investment strategies, and risk management, responsible for managing AIF portfolios and maximizing returns for investors.

PMS providers are registered portfolio managers with specialized expertise in portfolio management, asset allocation, security selection, and investment advisory, serving as fiduciaries to clients and managing their investment portfolios according to their objectives.

Role in Indian Financial Market

AIFs play a vital role in India's financial market by providing investors access to alternative asset classes, diversification opportunities, and specialized investment strategies beyond traditional stocks and bonds.

PMS contributes to the Indian financial market by offering personalized investment management services, professional portfolio management, and customized investment solutions to affluent investors, institutions, and high-net-worth individuals.

Investment Requirement

AIFs cater to a wide range of investors, including high-net-worth individuals (HNIs), institutions, family offices, and qualified institutional buyers (QIBs), with varying investment requirements and minimum ticket sizes depending on the AIF category and strategy.

PMS typically caters to affluent investors, high-net-worth individuals (HNIs), ultra-high-net-worth individuals (UHNIs), and institutional clients with significant investable assets, meeting minimum investment thresholds set by portfolio managers, typically starting from Rs 50 lakhs.


Before you go

The rise of PMS and AIF signifies a paradigm shift in the Indian investment landscape. These investment vehicles offer investors the potential for diversification, potentially higher returns, and a more tailored approach to wealth creation. Understanding their evolution, regulations, and future trajectory empowers investors to make informed decisions and navigate this dynamic financial ecosystem.