When I first began diving into alternate investments a few years ago with PMS AIF WORLD, I had a naïve view: choose whichever fund has the highest return. However, what I’ve learned through hands-on experience is far more nuanced—especially when it comes to comparing returns of Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) in India.
Enjoying the ride, but with eyes wide open
In 2018-19 I started recommending to clients a diverse bucket: some large-cap mutual funds, some PMS mandates, and a small allocation into AIFs. What struck me early on was that good PMS strategies often showed higher returns than their peers—but only if you were comfortable with higher risk, concentration and less liquidity. For example, a study found that PMS investment approaches in India out-performed benchmarks by around 70% on average across timeframes.
On the AIF side, the promise was intriguing: smart strategies, longer horizons, sometimes niche sectors or thematic plays. For instance, some Long-Only AIFs clocked 3-year returns of ~25.95% or 5-year returns of ~32.92% in certain cases.
But the experience also taught me to look deeper than just the headline number.
Here are some of the lessons I gathered while analysing returns and selecting the “best” funds for clients via PMS AIF WORLD.
What I Compare When I Look At PMS Returns
Consistency over many years: A one-year blip may look fabulous, but can you trust it? Some PMS strategies deliver 30-40%+ in 3-years.
Strategy & concentration risk: A PMS focused on small/mid-caps may hit big but also fall hard. The higher return potential comes with higher volatility.
Fees and tax implications: PMS returns may appear gross, but net of fees, performance may differ. Also, compare the tax treatment of gains.
Manager pedigree & process: PMS AIF WORLD puts this in its “5-P analysis” (People, Performance, Philosophy, Portfolio, Price) when evaluating PMS.
Liquidity & lock-in: PMSs may offer more direct ownership but fewer options to exit quickly compared to mutual funds; you must consider your horizon.
What I Look At for AIFs: Best Funds in India
When I help clients think about the best AIF funds in India, here’s what I emphasize:
Category matters: Long-Only vs Long-Short vs Credit/Alternate strategies behave very differently. For example, in FY2025, long-only AIFs averaged ~8.7% whereas in earlier years many had much higher returns.
Historical alpha and downside protection: I like funds that not only beat benchmarks in good years, but protect capital in weak ones.
Alignment with investor goals: AIFs are less “plug-and-play” than mutual funds. They often have higher minimums, sometimes lock-ins, and may suit HNIs or family offices more.
Transparent reporting & fee structure: Via PMS AIF WORLD, we insist on understanding how returns are calculated (gross vs net of expense, etc).
Comparability: I push clients to see how the AIF has performed relative to peers over 3-5 years, not just 1 year.
From my vantage at PMS AIF WORLD, here’s the simple summary:
If you’re looking for higher potential returns, are comfortable with concentrated bets and risk, and have a longer horizon – a well-chosen PMS may deliver. The evidence shows PMS has out-performed mutual funds and benchmarks in many cases.
If you’re looking for a more diversified alternate strategy, wish to access niche opportunities, and can accept those trade-offs (liquidity/fees/lock-in) – a carefully selected AIF may be very compelling.
BUT: Comparing PMS and AIF one-to-one purely on returns is misleading, unless you adjust for risk, strategy, horizon, and fees. Many investors make the error of picking the “best return number” rather than the “best fit”.
FAQ
Q1: Are PMS returns always higher than mutual funds?
No — while studies show that PMS strategies in India have often out-performed benchmarks and mutual funds (for example, PMS out-performed their benchmark ~70% of the time over various periods) , this is not guaranteed. Each PMS is different and performance can vary widely.
Q2: What is a good return for an AIF fund in India?
Depends on category and risk. For example, some 3-year returns for top long-only AIFs were ~25.95% in one sample. But in a tougher year (FY2025), many funds delivered ~8.7% for long-only AIFs. So context matters.
Q3: How do I decide between a PMS and an AIF?
Ask yourself: your risk appetite, investment horizon, minimum investible amount, liquidity need, and whether you prefer bespoke portfolio vs pooled fund. At PMS AIF WORLD, we use a deep review of People, Philosophy, Portfolio, Performance & Price to guide this decision.
Q4: Do the “best” PMS or AIF funds guarantee future returns?
Absolutely not. Past performance is not a guarantee of future returns. Market conditions change, strategies may cycle, and risk remains. The aim is to make an informed decision with help from research and adviser support.
Q5: What minimum investment is required for PMS or AIF?
Typically, PMS mandates are for HNIs and may have higher minimums (₹50 lakhs+ and often more). AIFs likewise have higher entry limits and sometimes lock-in periods. This is why they’re not as accessible as regular mutual funds.