In such an environment, investors often notice a clear pattern. Portfolio Management Services (PMS) tend to handle volatile markets better than traditional mutual funds. While both aim to grow wealth, the way PMS managers operate gives them a distinct advantage during turbulent times.
This blog explains how PMS managers navigate market volatility better than funds, and why their approach is increasingly attractive to serious, long-term investors.
Market volatility is no longer an occasional visitor. It has become a permanent reality in today’s financial markets. Global geopolitical tensions, interest rate cycles, algorithmic trading, and sudden liquidity shifts mean that sharp market swings can happen without warning.
Understanding Market Volatility in Simple Terms
Market volatility refers to how sharply and frequently prices move, both up and down, over a period of time. High volatility usually means uncertainty, fear-driven selling, panic buying, and emotional decision-making by retail investors.
For professional managers, volatility is not only about protecting returns. It is about:
- Preserving capital
- Managing risk proactively
- Seizing short-lived opportunities
- Avoiding forced or delayed decisions
This is where the structural differences between PMS and mutual funds start to matter.
What Makes PMS Structurally Different from Funds
Before discussing strategy, it is important to understand the foundation.
Mutual Funds
- Manage thousands or millions of investors
- Must follow strict regulatory allocation rules
- Decisions impact very large assets under management
- Redemptions can force selling at unfavorable times
Portfolio Management Services (PMS)
- Serve a limited number of high-net-worth investors
- Portfolios are customized or semi-customized
- Managers have greater flexibility in allocation
- Investors usually have a long-term mindset
Both structures are regulated by SEBI, but PMS enjoys more operational freedom within that framework.
1. PMS Managers Have the Freedom to Concentrate
One of the strongest advantages PMS managers have is concentration.
Mutual funds are often required to:
- Hold 40 to 60 stocks
- Limit exposure to a single stock or sector
- Maintain diversification even when conviction is high
PMS managers can:
- Run portfolios with 10 to 20 high-conviction stocks
- Increase allocation when volatility creates deep value
- Avoid owning average businesses only for diversification
In volatile markets, owning fewer but deeply researched companies helps PMS managers remain confident and avoid impulsive decisions.
2. Faster Decision-Making During Volatile Phases
When markets crash or spike suddenly, speed becomes critical.
Mutual funds:
- Must consider liquidity impact
- Follow layered approval processes
- Face difficulty moving large capital quickly
PMS managers:
- Can buy or sell swiftly
- Do not need to move massive volumes
- Can react within the same trading session if required
This agility allows PMS managers to accumulate quality stocks during panic, exit positions where fundamentals deteriorate, and rebalance portfolios quickly without disturbing market prices.
3. PMS Investors Are Emotionally Aligned
One of the most underrated advantages of PMS is investor psychology.
Mutual funds often face:
- Heavy redemptions during market corrections
- Stoppage of SIP inflows during fear cycles
- Panic amplified by constant media noise
PMS investors usually:
- Enter with a long-term horizon
- Accept drawdowns as part of equity investing
- Maintain direct communication with the manager
This emotional alignment allows PMS managers to hold through volatility instead of selling under pressure, execute contrarian strategies, and stay focused on business fundamentals.
4. Customized Risk Management in PMS
Mutual funds must design portfolios that work for everyone. PMS managers do not face this limitation.
In PMS:
- Risk appetite can differ between investors
- Cash levels can be increased when valuations appear stretched
- Defensive or aggressive strategies can be applied selectively
During volatile periods, PMS managers can raise cash, shift allocations based on macro or company-specific risks, and reduce exposure to overheated sectors early.
This level of risk customization is nearly impossible at the mutual fund scale.
5. Ability to Hold Cash Is a Major Advantage
Many mutual funds are required to stay almost fully invested at all times. Holding high cash levels can negatively affect short-term rankings and peer comparisons.
PMS managers:
- Can hold meaningful cash positions
- Wait patiently for attractive entry points
- Deploy capital aggressively during deep market corrections
In volatile markets, cash is not inactivity. It is strategic flexibility.
6. PMS Managers Focus on Absolute Returns
Mutual funds are constantly judged against benchmarks and peer funds on a quarterly and annual basis. This often leads to conservative positioning and benchmark tracking.
PMS managers operate differently:
- Focus on absolute wealth creation
- Face less pressure to match indices every quarter
- Are willing to underperform temporarily for long-term gains
Volatile markets reward independent thinking, not benchmark conformity.
7. Deeper Fundamental Research and Accountability
In PMS, accountability is direct and personal.
- Investors know exactly which stocks they own
- Managers explain decisions transparently
- Portfolio-level performance is clearly visible
This structure pushes PMS managers to conduct deeper research, avoid hype-driven narratives, and prioritize strong balance sheets during uncertain periods.
8. PMS Managers Use Volatility as an Opportunity
Volatility creates mispricing, forced selling, and temporary valuation distortions.
PMS managers often welcome volatility because it:
- Creates entry points in strong businesses at attractive valuations
- Flushes out weak hands from the market
- Separates short-term price action from intrinsic value
Mutual funds tend to react defensively, while PMS managers act opportunistically.
9. Better Tax Efficiency During Portfolio Adjustments
During volatile markets, frequent portfolio churn can quietly erode returns through taxes.
PMS managers:
- Plan exits strategically
- Offset gains and losses at the portfolio level
- Avoid unnecessary trading
Mutual fund investors have little control over capital gains distribution timing, which can reduce post-tax returns.
10. PMS Encourages Long-Term Wealth Thinking
PMS is not designed for short-term comfort. It is designed for wealth preservation and long-term compounding across market cycles.
Volatility becomes a tool rather than a threat.
