Aastha Yadav asked on 30/03/2020

Which is the better option for NRI: PMS or mutual funds?

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SBNRI Team
answered on 30/03/2020

PMS or Mutual Funds

Find below a comparison table for NRIs to differentiate between PMS and Mutual Funds on various factors.

Specification

PMS Mutual Fund
Objective Professional Services offered to meet investor specific investment objectives

Structured to meet fund stated investment objectives

Ownership

Investors Mutual Fund Trustees (Investors only allocated units)
Minimum Investment 50 Lakhs

Rs. 500/-

Customization

Possible Not Possible
Portfolio Construction 15-25 stocks

More than 50 stocks

Portfolio Stock Weightage

Flexible Limited to 10%
Reach Limited no. of Investors

Wide no. of Investors

Charges

Maintenance Charges Up to 2.50%*

Up to 2.25%*

 

Summary: For NRIs with a higher investment budget (more than 50 Lakhs), PMS will ensure higher returns and more flexible investments and for NRIs with a restricted budget (minimum investment at Rs.500/-), Mutual Funds will be the better option.

 

Here is a list of the Best PMS providers for NRI in India:

  • IIFL Investment Managers
  • ASK Investment Managers
  • Alchemy Investment Managers
  • Motilal Oswal Investment Managers

PMS Taxation for NRI

The taxes applicable for NRI investors in PMS services are deducted at source (TDS) by the brokerage firm and net profits are paid. The portfolio Managers (people responsible for handling your account) help you with the filing of your taxes by providing the tax statements at the end of the year. They also keep the entire process of investments transparent and will not sell or invest anywhere without letting you know. 

 

However, if the net profit/income in India for an NRI is below Rs. 2,50,000/-, a tax return can be filed to claim a refund of the taxes deducted as there are no taxes applicable for people in India with annual income of less than Rs. 2,50,000/-. Here is a table of tax slabs for your reference:

Income Tax Slab

Tax Rate
Up to 2.5 Lakhs

Nil

2.5 Lakhs to 5 Lakhs 

5%
5 Lakhs to 7.5 Lakhs

10%

7.5 Lakhs to 10 Lakhs

15%
10 Lakhs to 12.5 Lakhs

20%

12.5 Lakhs to 15 Lakhs

25%
15 Lakhs and above

30%

Here is a list of Mutual Fund Houses that accept investments from US: 

  • DHFL Pramerica Mutual Fund
  • Birla Sun Life Mutual Fund
  • ICICI Prudential Mutual Fund
  • SBI Mutual Fund
  • UTI Mutual Fund
  • L&T Mutual Fund
  • PPFAS Mutual Fund (Parag Parikh Financial Advisory Services)
  • Sundaram Mutual Fund

Different types of Mutual Funds are taxed differently: 

*(Equity Funds: An equity fund is a mutual fund that invests principally in stocks)

 

*(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities)

 

Nature of Profits / Income

Equity Funds* Debt Funds*
Minimum Holding period for Long term capital gains 1 year

3 years

Short term capital gains taxation

15% + 4% cess* = 15.60% As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab)
Long term capital gains taxation 10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)

(long term gains up to Rs 1 Lakh is tax-free) 

20% with indexation*

 

*(Cess: A cess is a tax on tax that you pay to the government for purposes set by the government. The cess is charged till the objective set by the government is fulfilled. Eg: Krishi Kalyan Cess, Swachh Bharat Cess etc.)

 

*(Indexation: Indexation refers to the technique of adjusting income payments using a price index to maintain the purchasing power of the public after inflation) 

 

 

To get expert advisory on Investment in PMS and Mutual funds at SBNRI, contact us using the button below.

 

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