Introduction:

PMS (Portfolio Management Service) is an ideal option for high-net-worth individuals or NRIs. The investment amount is high, and the portfolio is customised in conformity with the tenure.

On the other hand, VPF is a safe government-backed fixed-income savings scheme. Most investors believe that VPF is a safe bet for returns, but ideally, both PMS & VPF can offer good returns depending on the investment scheme.

As such, hiring a PMS company to handle your investments is the best option for long-term gains. Let's delve into the topic and learn which investment is better - PMS or VPF.

What is PMS?

PMS is a professional portfolio management service where professionals manage your portfolio related to investments you make. Portfolio managers create portfolios based on risk appetite & long-term investment horizon. The best part is that you hold the underlying stocks directly in your name.

As the portfolio is customised, it offers complete flexibility & control. Also, you can choose different portfolio management services based on your investment options. PMS (is managed) by SEBI, so you don't have to worry about security; the process is transparent & efficient.

Why choose PMS?

Well, it's essential to look into your risk profile before choosing PMS. If you are a high-net-worth individual with at least 50 lakhs to invest, you can choose PMS services.

Also, if you are comfortable with higher market risks, you may consider PMS. Ideally, this also depends on market volatility; the risks may be higher, but the returns are also good if you compare them with mutual funds.

A customised portfolio and close relationship with the fund manager ensure that you are always in the loop regarding your investments. If you’re eyeing a long-term investment horizon, this can be the right option for you.

What is VPF?

Voluntary Provident Fund is an extension of the employee provident fund program that lets the salaried employees contribute more than 12 percent of their basic salary or allowance towards retirement.

Of course, it is a low-risk and efficient way to build a retirement corpus with different contributions, withdrawals, and interests falling under the exempt tax rule. However, if the contributions are high, i.e., above 2.5 lakh annually, they may face taxation. The best part is that you can add any amount up to 100 per cent.

Why choose VPF?

The VPF (Voluntary Provident Fund) is ideal for you if you are a salaried individual. Of course, you can secure some amount of money you earn every month in the scheme. Also, as it's a government-backed scheme, the amount will be safe.

As an investor, you can expect a risk-free return over the market exposure. So, if you wish to maximize your tax-saving contributions, you can choose VPF.

VPF is not for investors who are eyeing higher capital gains based on tenure; it is more suitable for investors who wish to build a core and stable retirement corpus, more like a long-term retirement plan.

PMS vs VPF: Core Differences

• PMS is ideal for high net worth individuals, whereas a voluntary provident fund is a good option for investors who wish to build a long-term retirement corpus. In fact, PMS is also ideal for NRIs who wish to invest in Indian funds with the help of a dedicated fund manager. Once a fund manager is allocated, you can choose the portfolio type.
• The investment goal of PMS is wealth creation. As it's for high-net-worth individuals, you can expect long-term capital appreciation & wealth creation through active stock market appreciation. Alternatively, a voluntary provident fund focuses more on long-term secure retirement savings. Meaning, if you wish to invest in a safe option, choosing VPF is better.
• If you compare PMS with VPF, the former option has a higher risk. Of course, it depends on market volatility & high market risk returns. VPF has a lower risk and is typically government-backed. As it's regulated, you can expect good returns with complete safety.
• Safety is a primary concern for most investors today. With VPF, you can be sure of safety. That said, PMS is also a safe option as it offers customised investment options managed by fund managers.
• Talking about customization, PMS is highly customized as it depends on portfolio strategies. There are two types available, discretionary & non-discretionary. Alternatively, VPF offers a standardised pooled structure within the EPF framework. There is no room for customization here, as there is with PMS. Thats the reason most high-net-worth investors choose PMS over VPF.
• There are no regulatory lock-ins in PMS, but the withdrawal rules may vary based on investment. In VPF, there is a standard lock-in until retirement or resignation. However, premature withdrawal is allowed under specific conditions. In some cases, it is after 5 years of service.
• PMS is taxed on the capital gains & dividends. However, it is potentially less tax-efficient with a higher portfolio churn. VPF works on EEE status. What's that? All the contributions are Section 80C deductible. Also, the withdrawals and interest are tax-exempt.
• In PMS, the returns are based on the market, but there is potential for higher returns. The average returns of top PMS can also exceed market benchmarks. VPF has a fixed interest rate, which is similar to EPF. The rate is declared annually by the government.

Conclusion:

PMS is the best option for high-net-worth & sophisticated investors seeking aggressive growth strategies in the equity market. It is also ideal for investors who wish to have a customized portfolio for investment.

VPF is a more secure government-backed savings scheme for salaried employees. The risk is minimal, and the process is transparent. For higher returns, PMS is still the best option; it is customized & offers long-term capital gains.

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