PMS, Mutual Funds, SIF and AIF — How the Structures Differ

Pooled fund or individual account

The first question to ask of any of these products is what the investor actually holds. In a mutual fund scheme and in a SIF, investors' money is pooled and each investor holds units. A SIF is not a separate kind of institution: it is a product category inside the mutual fund framework, offered by a mutual fund.

PMS is different in kind. Each client has an individual account in their own name and owns the securities in it directly. Nothing is pooled with other clients.

An AIF is again a pooled fund in which investors hold units, but it is privately placed. Every AIF falls into one of three categories: Category I, II or III.

The minimum investment

A SIF needs ₹10 lakh per investor. PMS needs ₹50 lakh per client, brought in as funds or securities. The standard minimum for an AIF is ₹1 crore per investor; employees and directors of the AIF or of its manager may invest from ₹25 lakh. There is no ₹5 crore minimum for AIFs.

Accredited investors, who meet SEBI's income or net-worth tests, are exempt from the SIF, PMS and AIF minimums. All these figures are entry thresholds fixed by regulation: they do not rank the products by risk or by quality.

How each is offered

A mutual fund scheme is offered to the public. An AIF may raise money only by private placement, through a document called the placement memorandum. PMS rests on an agreement between each client and the portfolio manager, which records the service and the fees.

How the tax position differs

Structure drives tax. A mutual fund or SIF investor holds units, and a capital gain arises when the units are redeemed. A PMS client owns the securities, so each sale in the account is the client's own transaction and is taxed in the client's hands.

Category I and II AIFs have pass-through status for income other than business income: it is taxed in the investor's hands as if the investor had made the investment directly. Business income is taxed at the fund level. Category III AIFs have no pass-through, so their income is taxed at the fund level. This is the position as of October 2026.

What they share

None of these structures assures returns, and all carry market risk. A PMS portfolio may also be concentrated. AIF units are usually illiquid and capital can be lost, and a Category III AIF may use leverage, which can magnify losses.

Rules at a glance

Key points

• Mutual fund schemes and SIFs are pooled, and investors hold units; a SIF sits inside the mutual fund framework.
• PMS is an individual account in the client's own name, and the client owns the securities.
• An AIF is a privately placed pooled fund in Category I, II or III.
• Minimums: SIF ₹10 lakh per investor, PMS ₹50 lakh per client, AIF ₹1 crore per investor; accredited investors are exempt from all three.
• A PMS client is taxed on each transaction in the account; Category I and II AIFs pass income other than business income through to investors; Category III AIFs are taxed at the fund level.

Common misunderstandings

• A SIF is not a product outside the mutual fund rules: it sits inside the mutual fund framework and investors hold units.
• The AIF minimum is not ₹5 crore: the standard minimum is ₹1 crore per investor.
• Pass-through does not apply to every AIF or to all income: Category III income, and the business income of Category I and II funds, is taxed at the fund level.

Questions people ask