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Keen on generating alpha with downside protection? Try PMS or AIF

Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) strategies soar, delivering 10-15% monthly returns, leaving benchmark indices behind. Uncover the secrets to elevated investment success!

As an HNI investor, invent money and accentuate your existing wealth with Portfolio Management Services and Alternative Investment FundsPremium
As an HNI investor, invent money and accentuate your existing wealth with Portfolio Management Services and Alternative Investment Funds

As a high net-worth individual, a large portion of your focus revolves around augmenting your wealth in the most sustainable manner possible. In Robert Kiyosaki’s words, “The rich don’t work for money – the rich invent money." So, how can you, as an HNI investor, invent money and accentuate your existing wealth? You need nuanced strategies aimed at two major targets – generating alpha and ensuring downside protection. And both of these goals can be realised through the utilisation of select Portfolio Management Services and Alternative Investment Funds. Data shows on a month-on-month basis, while the benchmark indices are delivering single digit returns, some PMS and AIF strategies are delivering upwards of 10-15% returns. Here is everything you need to know about these investment avenues.

PMS vs. AIF – decoding the distinction

To begin with, PMS platforms offer you access to concentrated and/or customised portfolios featuring listed securities, in comparison with AIFs, which enable you to invest in non-traditional assets and strategies such as private equity, venture debt, long/short equity and structured credit. Exploring these entities further, a PMS is a professional financial service helmed by skilled and experienced portfolio managers who undertake research and trading to help you beat the market, in terms of returns. Their approach is aimed at maximising returns while minimising the risk factor on your investments, while dealing with market adversity in an optimal manner. Alternatively, AIFs pool money from investors, like a mutual fund, and then allocate the funds thus collected into strategically chosen hedge funds, private equity, venture capital and other investments. AIFs can be established in the form of a company or a Limited Liability Partnership.

Key differences between the two entities revolve around the minimum investment amount, structure of funds and lock-in period. While a PMS would require you to invest a minimum of INR 50 lakhs as capital, an AIF’s minimum requirement stands at INR 1 crore. Further, while AIFs pool funds from multiple investors, PMS investors directly own the stocks in their portfolio. While the PMS platform does not have a fixed lock-in period, enabling redemption at will, AIFs are usually close-ended with a pre-decided lock-in period. AIFs come in three categories, while PMS does not have any sub-classification.

Analysing AIF categorisation

AIFs have been divided under three categories, by the Securities and Exchange Board of India. Accordingly, Category I AIFs encompass sectors deemed economically and socially desirable by government and regulators, with sub-categories such as venture capital funds, angel funds, small and medium enterprises funds, social venture capital funds and infrastructure funds. Category II AIFs, as defined by SEBI, do not fall under Categories I and III and refrain from using leverage or borrowing for purposes other than daily operational needs. These funds do not receive government incentives or concessions. Subcategories of Category II AIFs include private equity funds investing in unlisted private companies, with a fixed investment horizon ranging from four to seven years, debt funds investing in debt securities of listed or unlisted companies facing capital constraints, and funds of funds which invest in various other AIFs, without forming their own investment portfolio.

Category III AIFs employ diverse trading strategies, including leverage, arbitrage, derivatives trading, futures, and margin trading, to invest in listed and unlisted derivatives. These AIFs can be either close-ended or open-ended funds and operate with fewer regulatory constraints compared to traditional investments. Subcategories within Category III AIFs include hedge funds, and Private Investment in Public Equity (PIPE) funds, which is a long-only subcategory purchasing shares of publicly traded companies at discounted prices. Given these three distinctive varieties under AIFs, HNI investors can easily choose the best AIF option and focus on generating long-term alpha while protecting their downside.

As we have seen, both AIFs and PMS platforms have their distinct features and advantages and the best pick among the two depends on your unique requirements. Alternatively, you can also allocate parts of your capital to both these strategies, thus ensuring optimal diversification and realising the potential inherent in both PMS and AIF.

 

Darshak Shah, Owner, PWS Enterprise LLP
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Darshak Shah, Owner, PWS Enterprise LLP

This article is authored by Darshak Shah, Owner, PWS Enterprise LLP

Disclaimer: This article is a promotional feature and it doesn't have journalistic/editorial involvement of Hindustan Times.

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Published: 28 Nov 2023, 03:49 PM IST
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