Debt PMS surge among HNIs — but are investors paying more for customisation vs mutual funds?

As fixed-income markets evolve, Debt Portfolio Management Services (PMS) are becoming a niche but influential choice for affluent investors looking beyond traditional debt funds. With Rs 50 lakh as the minimum investment, these customised strategies—popular among UHNWIs, family offices and corporate treasuries—offer concentrated exposure and active credit calls. According to APMI, 169 debt PMS mandates collectively manage ₹40,351 crore, largely invested across 5–25 NBFC-heavy securities.

Debt PMS portfolios typically comprise 5-25 securities and lean towards instruments issued by non-banking financial companies (NBFCs), ensuring liquidity, transparency and enhanced credit selection.

Unlike mutual funds—bound by sector and issuer exposure limits—debt PMS portfolios typically focus on 5 to 25 securities, allowing managers to take concentrated positions and execute nuanced credit strategies. The portfolios largely invest in listed and rated instruments across government securities, corporate bonds, money market instruments and hedging derivatives. Managers frequently transact through Request for Quote (RFQ) platforms on the BSE and NSE, enabling transparent price discovery and efficient deal execution.

One of the most significant attractions of debt PMS lies in its flexibility. Duration management ranges widely, with some strategies actively rebalancing based on interest-rate views, while others maintain target-maturity structures akin to fixed-maturity products. Examples include PACE 360 Tresor Secure, known for its dynamic duration shifts, and Northern Arc Income Builder, which maintains a more stable tenor profile.

To differentiate themselves, several PMS providers pursue higher yields by investing in lower-rated credit. This includes products such as Sundaram Conservative, which allocates to AAA–AA papers targeting around 9.5% yields, while its Aggressive variant ventures into BBB-rated issuers to aim for returns upward of 12.5%. PMS Bazaar data reflects this wide dispersion: one-year returns for debt PMS strategies range from 5% to 12.9%, while three-year returns lie between 5.3% and 12.3%. Performance is evaluated using the SEBI-mandated Time-Weighted Rate of Return (TWRR) method to ensure consistency.

However, this tailored approach comes at a premium. Annual management fees for debt PMS typically fall between 0.6% and 2.5% of assets, or 6–15% of returns above a hurdle rate. In comparison, debt mutual funds charge between 0.2% and 1.7% and have historically delivered annualised returns of 8–8.3%. The question, therefore, is whether PMS justifies its cost.

“Debt PMS offers limited advantages over debt mutual funds,” says Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance. Mutual funds, he notes, benefit from repository-scale research, regulatory safeguards and large pooled assets that enhance stability. But they remain confined to SEBI-defined categories, limiting customisation.

Debt PMS offers tailored portfolio construction based on the specific cash flow needs or liability-matching requirements of HNIs and family offices. They can also tap niche investment opportunities that would breach mutual fund exposure norms. PMS accounts additionally allow active tax management, enabling investors to offset gains with historical or current losses—an option unavailable in mutual funds. The ability to directly engage with fund managers further strengthens their appeal for affluent investors seeking bespoke oversight.

When asked about the rising trend of lower-rated credit exposure, Sedani notes that managers are balancing risk through structured maturities, staggered tenor ladders, dynamic duration management and enhanced liquidity access via debt trading platforms. Still, he cautions that many strategies remain yield-driven and less conservative than traditional mutual funds—making risk assessment essential.

As debt PMS continues to grow, the trade-off for investors is clear: higher customisation and potential alpha in exchange for greater credit risk, liquidity concerns and elevated costs. Whether it proves worthwhile hinges on an investor’s risk appetite, cash flow needs and the sophistication of the manager steering the portfolio.