PMS vs AIF
In a PMS you own the shares; in an AIF you own units of a fund that owns the investments.
An Alternative Investment Fund (AIF) is a privately pooled fund: investors put money into a trust, company or LLP and receive units. A PMS is a contract to manage one client's own portfolio. Both serve wealthy investors, both are regulated by SEBI, and both are often pitched at the same meeting, which is why clients and exam questions mix them up.
The short version for a client: in a PMS you own the shares; in an AIF you own units of a fund that owns the investments.
You save ₹100
- Full-length mock tests
- Chapter-wise question bank
- AI study plan
One payment, no subscription · Valid for 1 month
PMS vs AIF at a glance
Regulations
PMS
SEBI (Portfolio Managers) Regulations, 2020
AIF
SEBI (Alternative Investment Funds) Regulations, 2012
Structure
PMS
Individual account per client; no pooling
AIF
Pooled fund set up as a trust, company, LLP or body corporate
What the investor holds
PMS
The securities themselves, in the client's own demat account
AIF
Units of the fund (issued in demat form)
Minimum investment
PMS
₹50 lakh
AIF
₹1 crore (₹25 lakh for the fund's or manager's employees and directors)
Accredited investors
PMS
₹50 lakh minimum can be waived
AIF
₹1 crore minimum does not apply
Investor limit
PMS
Not applicable: each account stands alone
AIF
No more than 1,000 investors per scheme, accredited investors excluded from the count
Classification
PMS
By service: discretionary, non-discretionary, advisory
AIF
By category: I, II and III
Unlisted securities
PMS
None for discretionary; up to 25% for non-discretionary and advisory; up to 100% for large value accredited investors
AIF
Category I and II funds are built for unlisted and private investments
Leverage
PMS
A manager may not leverage the client's portfolio for derivatives (the 2026 Regulations approved by SEBI's Board, not yet in force, would allow exchange-traded derivatives up to 1.25 times client AUM)
AIF
Category III may employ leverage, including through derivatives
Getting money out
PMS
Withdraw under the agreement; exit load capped at 3%, 2%, 1%, then nil
AIF
Category I and II are close-ended with a minimum tenure of three years; Category III may be open-ended or close-ended
Large value tier
PMS
Accredited investor with an agreement of at least ₹10 crore
AIF
Each investor an accredited investor putting in at least ₹25 crore
| PMS | AIF | |
|---|---|---|
| Regulations | SEBI (Portfolio Managers) Regulations, 2020 | SEBI (Alternative Investment Funds) Regulations, 2012 |
| Structure | Individual account per client; no pooling | Pooled fund set up as a trust, company, LLP or body corporate |
| What the investor holds | The securities themselves, in the client's own demat account | Units of the fund (issued in demat form) |
| Minimum investment | ₹50 lakh | ₹1 crore (₹25 lakh for the fund's or manager's employees and directors) |
| Accredited investors | ₹50 lakh minimum can be waived | ₹1 crore minimum does not apply |
| Investor limit | Not applicable: each account stands alone | No more than 1,000 investors per scheme, accredited investors excluded from the count |
| Classification | By service: discretionary, non-discretionary, advisory | By category: I, II and III |
| Unlisted securities | None for discretionary; up to 25% for non-discretionary and advisory; up to 100% for large value accredited investors | Category I and II funds are built for unlisted and private investments |
| Leverage | A manager may not leverage the client's portfolio for derivatives (the 2026 Regulations approved by SEBI's Board, not yet in force, would allow exchange-traded derivatives up to 1.25 times client AUM) | Category III may employ leverage, including through derivatives |
| Getting money out | Withdraw under the agreement; exit load capped at 3%, 2%, 1%, then nil | Category I and II are close-ended with a minimum tenure of three years; Category III may be open-ended or close-ended |
| Large value tier | Accredited investor with an agreement of at least ₹10 crore | Each investor an accredited investor putting in at least ₹25 crore |
The three AIF categories
Paraphrased from Regulation 3(4) of the AIF Regulations.
- Category I
- Funds the government or regulators may see as having positive spillover for the economy, such as venture capital, SME, social impact and infrastructure funds.
- Category II
- Funds that are not Category I or III and do not borrow or use leverage except as permitted, such as private equity and debt funds.
- Category III
- Funds that use diverse or complex trading strategies and may use leverage, including through listed or unlisted derivatives, such as hedge funds.
Free account, this exam preselected.
When the difference matters to a client
Consider a business owner with ₹2 crore who wants exposure to listed mid-caps and the option to exit in two years. A discretionary PMS fits the listed focus and the exit horizon, with an exit load of up to 2% in the second year. A Category II private equity AIF does not: it invests mainly in unlisted companies and is close-ended for at least three years.
Now a client who wants a long-short equity strategy with derivatives leverage. That is a Category III AIF profile. A PMS cannot leverage the client's portfolio for derivatives, though it may use derivatives on the terms set in the agreement.
How XXI-A tests this
Questions name a feature and ask which product it belongs to: pooled vehicle (AIF), securities in the client's own name (PMS), ₹1 crore minimum (AIF), ₹50 lakh minimum (PMS), leverage permitted (Category III AIF). The trap is the large value threshold: ₹10 crore for a large value accredited investor in PMS against ₹25 crore per investor for an AIF large value fund. Older notes may still show ₹70 crore for the AIF figure, which SEBI cut to ₹25 crore from November 2025.
FAQs
What is the difference between PMS and AIF?expand_more
A PMS manages your own portfolio in your own demat account. An AIF is a pooled fund that issues you units. PMS starts at ₹50 lakh; an AIF at ₹1 crore, with exceptions for accredited investors in both.
What is the minimum investment in an AIF compared with PMS?expand_more
₹1 crore for an AIF (₹25 lakh for the fund's or manager's employees and directors) against ₹50 lakh for PMS.
Can a PMS use leverage like a Category III AIF?expand_more
Not under the 2020 Regulations in force: a portfolio manager may not leverage the client's portfolio for investment in derivatives. Category III AIFs may employ leverage. SEBI's Board approved 2026 Regulations, not yet in force, that would allow exchange-traded derivatives up to 1.25 times client AUM.
Can I exit an AIF as easily as a PMS?expand_more
Usually not. Category I and II AIFs are close-ended with a minimum tenure of three years. A PMS client can withdraw under the agreement, paying an exit load of at most 3%, 2% or 1% in the first three years.