Choosing an Alternative Investment Fund (AIF) or Portfolio Management Services (PMS) strategy involves more than comparing returns. The manager's investment philosophy, decision-making process, risk controls, fee structure and governance can influence your experience over several market cycles.
Knowing how to choose a PMS or how to choose an AIF starts with asking whether the strategy suits your financial goals, investment horizon and ability to tolerate losses. A strong recent performance record is useful, but it cannot replace detailed due diligence.
This guide explains PMS manager selection and AIF manager selection, from checking SEBI registration to assessing portfolio concentration, understanding fees and identifying warning signs before committing capital. If you are comparing providers specifically, also read our guide on how to select a PMS provider.
What Should You Check Before Choosing an AIF or PMS Manager?
Start with these core checks before moving to a detailed review. This AIF due diligence checklist also provides a practical foundation for PMS due diligence.
| Due diligence area | What to examine |
|---|---|
| Regulatory status | SEBI registration, relevant disclosures and regulatory compliance |
| Investment philosophy | Strategy objectives, investment universe and decision-making framework |
| Track record | Performance across market cycles, rolling returns and benchmark comparisons |
| Risk management | Maximum drawdown, volatility, portfolio concentration and liquidity |
| Fees | Fixed charges, performance fees, hurdle rate, carry and other expenses |
| Governance | Investment committee, auditor independence, custodian and conflict-of-interest policies |
| Key personnel | Fund manager experience, succession planning and key-person risk |
| Documentation | Disclosure document, private placement memorandum and contribution agreement |
| Investor suitability | Minimum commitment, lock-in, redemption terms and investment horizon |
The objective is to understand how the manager invests, how losses are managed and whether the terms are transparent. A useful AIF due diligence checklist should identify both financial and operational risks, while PMS due diligence should examine the specific investment approach and the arrangements governing your individual portfolio.
How Do You Verify a Manager Is Actually Registered?
Regulatory registration is a starting point, not a guarantee of investment performance.
For PMS, check the manager's registration details through SEBI's official registered portfolio manager records. Confirm that the legal entity, registration number and service being offered match the information in the proposal.
For AIFs, establish the fund's registration category, legal name, scheme details and identity of the manager and sponsor. Do not rely solely on a presentation, distributor's statement or website badge.
APMI, the Association of Portfolio Managers in India, is another relevant industry resource for PMS-related information. Use it alongside SEBI's regulatory records rather than treating an industry listing as a substitute for regulatory checks.
When considering how to select a PMS, distinguish the registered portfolio management entity from the individual investment professional, distributor or adviser marketing the strategy. Similarly, how to choose an AIF requires clarity on the fund, scheme, manager and sponsor.
A registration number alone does not establish that a strategy is suitable for you. Check the disclosure documents, complaints-handling arrangements and the consistency of the information presented across the relevant legal entities.
How Do You Read a Track Record Properly?
A track record should show how a strategy behaved in different market conditions—not just how much it earned in its strongest period.
Ask for performance across multiple time frames, including one-year, three-year, five-year and since-inception results where available. Compare the figures with the appropriate benchmark and establish whether they are gross or net of fees.
For how to analyse PMS returns, examine performance alongside the market environment, investment style and risk taken to generate it. An equity strategy should not be assessed against an unrelated benchmark simply because that comparison looks favourable.
For AIFs, understand the difference between realised and unrealised gains, distributions and changes in reported portfolio valuations. In private-market strategies, a reported valuation may not be equivalent to cash received from an exit. Read our guide to AIF NAV and valuation to understand how reported fund values are assessed.
When deciding how to evaluate a fund manager, look for evidence that the investment process—not a handful of successful positions—explains the results. Ask whether the same team and philosophy were responsible for the entire track record.
A manager's past performance should be interpreted in context. PMS manager selection becomes more meaningful when you examine returns, losses, market conditions and changes in personnel together.
Which Numbers Matter and Which Mislead?
No single metric can establish investment quality. Use several measures together.
| Metric | What it tells you | What to watch |
|---|---|---|
| Benchmark-relative return | Whether the strategy outperformed its stated benchmark | Benchmark suitability and consistency |
| Rolling returns | How performance changes across overlapping periods | Weak periods hidden by point-to-point returns |
| Maximum drawdown | The largest peak-to-trough decline during the measured period | Depth and duration of losses |
| Standard deviation | How widely returns fluctuate | High volatility relative to the strategy's objective |
| Sharpe ratio | Return earned relative to volatility | Time period, risk-free rate and consistency |
| Information ratio | Excess return relative to tracking error | Whether outperformance is repeatable |
| Portfolio churn | How frequently holdings are bought and sold | Trading costs, taxes and changing conviction |
| Risk-adjusted return | Return considered alongside risk | Whether returns depend on excessive exposure or leverage |
There is no universally acceptable maximum drawdown for every PMS or AIF. A concentrated small-cap strategy may behave very differently from a diversified large-cap strategy. Evaluate drawdowns against the stated mandate, comparable strategies and your financial capacity to absorb losses.
Also examine the recovery period after a decline. A strategy that loses 30% needs a gain of approximately 43% to return to its original value.
For how to analyse PMS returns, check whether performance is presented consistently and whether the benchmark and reporting period are clearly identified. Ask for supporting performance disclosures rather than relying on selected charts. For a closer look at the measures used to compare portfolio managers, read our guide to PMS performance metrics.
The same discipline applies to how to evaluate a fund manager in India: strong headline returns deserve scrutiny if they coincide with high concentration, substantial churn or unusually favourable market conditions.
How Concentrated Is the Portfolio, and Can You Live With It?
Concentration can strengthen returns when a manager's best ideas perform well. It can also magnify losses when a few holdings disappoint.
For PMS, examine the number of holdings, position sizes, sector exposures, market-cap distribution and limits on individual investments. Ask how the manager decides when to add to a position, reduce it or exit.
For AIFs, review concentration at the company, sector, strategy and vintage levels, as applicable. Private-market investors should also consider whether capital is spread across investments that depend on similar economic conditions.
Understand liquidity as well. Listed securities may be easier to sell than unlisted investments, but liquidity can deteriorate during market stress. AIF lock-ins and distribution timelines may restrict access to capital even when the portfolio's reported value appears stable. Before committing capital, understand the AIF lock-in period and exit restrictions.
A sound PMS due diligence process checks whether the portfolio's actual exposures match the stated investment philosophy. The AIF due diligence checklist should also consider valuation uncertainty and exit dependence where relevant.
Which Documents Should You Read Before Signing?
Read the documents that define your rights, costs and exposure to risk. Marketing material is not a substitute for contractual terms.
For PMS, review:
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The portfolio manager's disclosure document and investment approach.
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The client agreement, including fees, reporting, termination and withdrawal provisions.
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The risk disclosures and benchmark methodology.
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Custody arrangements, related-party disclosures and grievance procedures.
For AIFs, review:
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The private placement memorandum (PPM), covering strategy, risks, fees, fund terms and conflicts.
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The contribution agreement, which sets out investor commitments and related obligations.
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The fund's distribution waterfall, expenses, valuation policy and exit provisions.
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Key-person clauses, investment restrictions and the process for material changes.
For a closer explanation of the offer document and the terms it contains, read our guide to the AIF private placement memorandum (PPM).
Do not skim sections dealing with extensions, transfers, defaults, redemption restrictions or changes to the investment mandate. These provisions can matter more during difficult periods than the strategy's marketing claims.
When deciding how to choose a PMS, make sure the written investment approach matches what the manager has explained. For how to choose an AIF, understand how the PPM and contribution agreement work together and what happens if the fund's circumstances change.
What Should You Look for in PMS and AIF Fee Structures?
Compare the total cost, not just the headline management fee.
PMS fees may include a fixed management charge, a performance-linked component and other disclosed expenses. AIFs may charge management fees and performance-linked carry, depending on their terms.
| Fee component | What to clarify |
|---|---|
| Fixed management fee | Calculation basis, payment frequency and applicable taxes |
| Performance fee or carry | Percentage, calculation method and timing |
| Hurdle rate | Minimum return level relevant to performance-fee calculations |
| High-water mark | Whether previous losses must be recovered before fees recur |
| Fund expenses | Administration, audit, custody, legal and other charges |
| Transaction costs | Brokerage, taxes and portfolio turnover-related costs |
| Exit or early withdrawal costs | Applicable charges and contractual conditions |
For a more detailed breakdown, read our guides to PMS fees and charges and AIF fees and charges.
A hurdle rate does not automatically mean the investor receives a guaranteed return. For a detailed explanation of how this threshold works, read our guide to the hurdle rate in an AIF. Understand whether the hurdle is simple or compounded, whether it is calculated before or after expenses and how losses affect future performance fees.
For AIFs, examine the distribution waterfall carefully. The timing of carry, return of contributed capital and any preferred return can affect the amount and timing of distributions. Our guide to carried interest in AIF explains how performance-linked compensation can affect investor distributions.
Clear fee disclosures are an important part of PMS manager selection and AIF manager selection. Ask for worked examples showing how much you could pay under different performance outcomes.
Who Else Is Involved: Trustee, Custodian, Auditor and Valuer?
A fund's governance matters because investment performance is only one part of investor protection.
For PMS, understand the custodian's role in holding assets and the arrangements for account reporting and reconciliation. Confirm how the manager handles client assets and communicates material changes.
For AIFs, identify the trustee or trustee company, fund administrator, custodian, auditor and independent valuer, where applicable. Understand who is responsible for oversight, recordkeeping, valuation and financial reporting.
Ask how conflicts of interest are disclosed and managed, particularly where related parties provide services or investments involve connected entities. Auditor independence and a documented valuation policy are especially important when assets are difficult to price.
The investment committee's role should also be clear. Ask who approves investments, how dissenting views are handled and what happens if the lead manager leaves. These questions help assess governance beyond the fund manager's personal reputation. For more detail on the roles and responsibilities within an AIF, read our guide to AIF fund structure, including the sponsor, trustee, manager and investor rights.
Ten Red Flags Worth Walking Away From
These AIF red flags for investors and PMS red flags deserve careful attention:
- Guaranteed returns: Claims that market-linked investments cannot lose money.
- Unclear registration: Reluctance to provide legal entity details or registration information.
- Selective performance: Only showing the best months, holdings or market phases.
- Unexplained benchmark: Comparing results with an unsuitable index.
- Hidden fees: Vague answers about expenses, carry, taxes or performance-fee calculations.
- Unclear valuation: No credible explanation for pricing illiquid or unlisted investments.
- Excessive concentration: Significant exposures without a clear risk-management framework.
- Weak governance: Limited disclosure of related-party transactions, audit arrangements or decision-making responsibilities.
- Key-person dependence: No credible succession plan if the lead manager becomes unavailable.
- Pressure to commit quickly: Discouraging document review or avoiding detailed investor questions.
Other warning signs include inconsistent reporting, unexplained changes in investment philosophy and a refusal to discuss drawdowns. A persuasive pitch cannot compensate for weak documentation or evasive answers.
Questions to Ask the Manager Before You Commit
Use these questions to ask a fund manager to understand the strategy's real operating process:
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What investment philosophy guides your decisions, and what would make you change it?
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How did the portfolio behave during a difficult market period?
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What was the maximum drawdown, and how long did recovery take?
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How do you manage concentration, liquidity and downside risk?
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Who makes investment decisions, and what role does the investment committee play?
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How are performance, fees and portfolio exposures reported?
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What happens if the lead manager leaves?
Add these questions to ask a PMS provider before signing:
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Are the returns shown net of all fees and comparable with the stated benchmark?
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What are the complete charges, including performance fees and transaction costs?
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How are client assets held and reconciled?
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What are the exit, termination and reporting provisions?
For AIFs, ask about capital calls, fund extensions, valuation methods, distributions, transfer restrictions and the waterfall governing carry. You can also review our guide to AIF capital calls and drawdowns to understand how commitments are called over time.
If you are researching how to evaluate a fund manager, compare the answers with the documents rather than relying on verbal assurances. To understand how to evaluate a fund manager in India, consider the regulatory record, investment process, governance, team stability and consistency of disclosures together.
Ultimately, how to choose a PMS depends on whether the approach suits your goals and risk tolerance. How to select a PMS is not simply a ranking exercise: it is a process of testing the manager's claims against evidence. Similarly, how to choose a fund manager for an AIF requires understanding the fund structure, investment horizon and terms governing your capital.
Explore PMS and AIF Strategies with ALTPORT
Choosing a manager is easier when you can compare investment approaches, understand their stated mandates and review the information available before making a decision.
Explore PMS strategies on ALTPORT, learn about ALTPORT's manager selection process and read about SIP, STP, SWP, switch and top-up facilities in PMS.
For help navigating the available strategies, contact ALTPORT. Compare managers carefully, read the relevant documents and choose only after assessing the risks and terms.
Disclaimer: Investments in securities are subject to market risks. Read all scheme-related documents carefully. Past performance is not indicative of future results.