Imagine you have ₹1 crore to invest. You hear about “PMS vs hedge funds.” Which path offers more upside? Which carries more risk? Let’s break this down clearly so that you, as an investor, can see the real contrast and make an informed choice.
What are PMS and Hedge Funds?
- PMS (Portfolio Management Services): This is a service where a professional portfolio manager invests money on behalf of an individual client. The portfolio is customised to your risk appetite, goals, and preferences. You own the underlying securities directly.
- Hedge Funds: These are pooled investments (often via Alternative Investment Funds in India) that use aggressive and flexible strategies such as leverage, derivatives, and short selling to aim for high returns. Investors get units, not direct ownership of all underlying assets.
So, PMS is more “tailored to you,” whereas hedge funds are more “pooled, high-octane bets.”
Key Differences: Side by Side
| Features | PMS | Hedge Funds |
| Structure & Ownership | Direct ownership of stocks/securities in your account | You hold units/shares of a pooled fund |
| Control & Customization | High — manager can tailor the portfolio to you | Lower — one fund strategy for all investors |
| Strategy Freedom | Can use equities, debt, derivatives (within regulation) | Much broader can be short, leverage, and use exotic derivatives |
| Risk Profile | Moderate to high, depending on style | Often higher more volatility, more downside |
| Return Potential | More “balanced alpha” | Can deliver outsized returns (or losses) |
| Liquidity / Exit Terms | Generally, more liquidity (depending on rules | Often limited by lock-in periods/redemption gates |
| Fees / Cost Structure | Management fee + sometimes performance fee | Typically higher fixed + carried interest/performance fee |
| Regulation / Transparency | Regulated (in India, PMS under SEBI) | More freedom, but less transparency sometimes |
| Minimum Investment | High (e.g. ₹50 lakh in India) | Even higher (e.g. ₹1 crore or more) |
Performance & Returns: What the Data Says
Let’s look at real numbers to make this concrete.
- In the Indian PMS space, equity PMS schemes have shown strong recent returns. For example, in the past year, large- and mid-cap PMS funds delivered an average return of 47.64%, while small- and mid-cap PMS funds logged an average return of 42.67%.
- Top PMS funds often outperform their benchmark by a few basis points. In a study of 30 top PMS funds (India), 70% beat their benchmarks. On average, they generated 62 basis points (bps) of excess return per month.
- For hedge funds globally, returns increased from 4.8% to 9.3% between 2020 and 2024, reflecting their ability to generate alpha in volatile markets.
- In India’s long-short AIF (a typical hedge-fund–style fund), in February 2025, the long-only variants lost approximately 8.70%, but the long-short versions limited the loss to approximately 3.09%
So, hedge funds can protect downside better in volatile markets (via hedging), but they also carry more complexity and cost.
Risk: PMS vs Hedge Fund
Risk is often the silent partner in returns.
- PMS Risk: You are exposed to market swings, stock-specific risk, and sector risk, but usually with limits (no extreme leverage).
- Hedge Fund Risk: You add on leverage risk, counterparty risk, strategy risk (if your hedge calls are wrong), and liquidity risk (you may not exit when you want).
- Because hedge funds often stretch into aggressive bets, their risk of large drawdowns is higher. On the other hand, in down markets, they can mitigate full exposure by using shorts or hedges.
Strategies Compared
- PMS strategies often stick to long-only equity, value/growth tilts, sector allocations, or multi-asset mix.
- Hedge funds can employ long-short equity, market-neutral, global macro, event-driven, or quant/algorithmic approaches.
- A hedge fund might short financials while going long in tech simultaneously; a PMS would more likely overweight or underweight sectors, but rarely short (in India) because of regulatory limits.
Benefits Compared (PMS vs Hedge Funds)
PMS benefits:
- Transparency — you see holdings directly.
- Flexibility — easier entry/exit.
- Customisation to your risk appetite.
- More regulatory oversight and clarity.
Hedge fund benefits:
- Higher upside potential in good years.
- Better downside protection via hedging and strategies.
- Access to complex strategies and global assets.
- Diversification outside traditional equity direction.
Why Choose Equentis Investech?
At Equentis Investech, we believe in purposeful investing, transparency, and alignment with your goals.
- We craft PMS portfolios tailored to your risk appetite, time horizon, and ambitions.
- We avoid unnecessary leverage or opaque strategies.
- Our reporting is clear, frequent, and easy to understand.
- We stay close with clients, you understand what is happening, not just hear jargon.
We don’t pretend hedge funds are always better. We believe the right choice is yours. If you prefer a balanced, controlled, and growth-focused investment path, our PMS solutions offer disciplined performance. If you want to explore hedge-like strategies, we can guide you cautiously.
Let’s talk one-on-one so you can see which path fits your financial journey. At Equentis Investech, you don’t just invest, you understand.
