What is the difference between portfolio management and mutual funds?

The purpose of mutual funds and portfolio management is the same i.e., Invest money to get better returns. Although portfolio management and mutual funds are the ways to invest in the market in an indirect way still there are significant differences between them.

Portfolio Management and Mutual Funds work on different investment models all the investors need to understand the core difference between them so that investors can make informed investment decisions.

Portfolio Management

Portfolio Management is considered as art and science of selecting investments to meet the long-term financial goals keeping in mind the risk capacity of individual, company, or institution. Portfolio Management involves SWOT analysis across the investments so that one can selectively decide which investment avenues suit the profile and can provide maximum returns.

Portfolio Management is done by licensed professionals who manage the portfolio of their clients. The ultimate goal of portfolio managers is to gain maximum returns on investments with appropriate risk exposure. In an Active portfolio, Portfolio Managers strategically buy and sell the stocks and assets to beat the market returns.

Mutual Funds

Mutual Fund is a type of investment instrument that is made up of a pool of money collected from various investors to invest in stocks, bonds, and other assets. Mutual funds are operated by professionals who allocate the funds and try to produce maximum gains for the fund's investors. Mutual funds give chance to small and medium investors to professionally manage their funds into equities, bonds, or other securities. Every investor gets returns in proportion to investment done. The performance of Mutual Funds is tracked as a change in market capitalization of funds which is derived from the performance of underlying investments.

Differences

Fee Structure

Portfolio Management services charge a very high fee as compared to Mutual Funds. In Portfolio Management charges include fixed fee, performance fee, fund management fee whereas in mutual funds charges are fixed and they depend upon the amount of individual investment.

Risk

Portfolio Management is done on a concentrated portfolio of around 30 stocks which makes them riskier than mutual funds because Mutual funds offer diversification by investing in a huge number of stocks and different funds.

Tax

Mutual Funds are exempted from tax liability whereas in the case of Portfolio Management investors have to pay capital gain tax.

Size of Investment

One must choose the type of investment instrument as per the risk appetite of an individual. In portfolio Management minimum investment size is Rs 25 Lakh whereas in mutual funds you can invest in a systematic investment plan with juts Rs 500. Portfolio Management services generally belong to high net worth individuals whereas mutual funds serve to a wide range of investors.

Transparency

Mutual funds are tightly regulated by SEBI whereas Portfolio Management services are not that transparent as compared to mutual funds.

Conclusion

Investment Planning is a must for every individual. One must ensure that the risk taken on investment is as per the risk appetite of the individual. Comparative Analysis is a must for all kinds of investments.