Being "Different" with NJ ELSS Tax Saver Scheme

Date : July 23,2025

When it comes to investing, aggressive investors often lean toward Portfolio Management Services (PMS). It’s easy to see why PMS offers a feeling of exclusivity, direct ownership, and the appeal of personalised management. However, is PMS the smarter choice? Or are we overlooking a more different, innovative, and tax-efficient alternative — ELSS (Equity Linked Saving Scheme)?

Let’s explore a ‘different’ perspective, one that challenges long-held myths and uncovers the untapped potential of the NJ ELSS Tax Saver Scheme, especially for aggressive investors.

Why PMS Appeals: The Perceived Edge

The allure of PMS stems from a few powerful perceptions:

The belief that PMS generates superior returns compared to mutual funds
A preference for a more aggressive and concentrated portfolio
Desire for higher exposure to small and mid-cap stocks
Provides a feeling of holding stocks directly
Provides a feeling of personalised management

These perceptions make PMS feel bespoke. But the real question is, does it deliver better outcomes, especially when taxes, costs, and investor behaviour are factored in?

Myth vs Reality: Time to Re-evaluate Perceptions

Let’s look at what the data, not just perception, tells us in the PMS vs mutual funds comparison.

Myth 1: Equity PMS Generates Better Returns than Equity Mutual Funds

Investment structure alone doesn’t create returns; strategy does.

This widely held belief that equity PMS consistently outperforms equity mutual funds doesn't hold up when examined against actual historical performance. When both investment vehicles follow a sound strategy and are managed by skilled professionals, their returns converge, irrespective of whether they’re structured as PMS or mutual funds.

Let’s look at the numbers.

Particulars	1 YEAR RETURNS		2 YEAR RETURNS		3 YEAR RETURNS		5 YEAR RETURNS
Particulars	Equity PMS	Equity Mutual Fund	Equity PMS	Equity Mutual Fund	Equity PMS	Equity Mutual Fund	Equity PMS	Equity Mutual Fund
Average Return	8.54%	8.75%	23.19%	23.07%	20.50%	20.16%	26.88%	25.99%
Median Return	7.86%	8.95%	22.04%	22.67%	19.58%	19.84%	25.21%	25.25%

Data as on 31st of May, 2025. Source: PMS Bazaar, ICRA. All equity PMS Investment Approaches (IAs) have been considered for comparison. Regular Plans (Growth Option) of all open-ended equity mutual funds have been considered for comparison. Average Return and Median Return are calculated as the average and median of the returns generated by the Equity PMS IAs and Equity Mutual Fund schemes, respectively, for the given holding periods. Returns above 1 year holding period are annualised. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

Returns from equity PMS and equity mutual funds are strikingly similar across all holding periods. In fact, equity mutual funds have slightly outperformed equity PMS in certain instances. The difference in returns is statistically insignificant, reinforcing the fact that structure alone does not ensure outperformance.

Myth 2: PMS Offers Personalised Portfolio Management

Despite the perceived customisation, the majority of PMS offerings execute a common investment strategy, similar to how mutual funds operate. Customisation exists only in niche cases and usually at a significantly higher cost.

So, while PMS may feel tailor-made, in practice, it’s rarely any more customised than a high-quality mutual fund scheme.

Myth 3: Holding Stocks Directly is More Advantageous

Direct ownership in PMS comes with a high tax cost, one that quietly erodes long-term wealth.

Unlike mutual funds, where capital gains are only taxed upon redemption, PMS investors are subject to capital gains tax on every transaction within the portfolio. This includes both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) incurred during the rebalancing process. Additionally, dividends received in a PMS portfolio are taxed as per the investor’s income slab, whereas mutual funds handle dividend taxation at the fund level, with better efficiency.

Let’s explore how this plays out over the long term.

Consider a hypothetical example of 2 investors, Parth and Manan, investing in an Equity PMS and Equity Mutual Fund Scheme, respectively. Both investment instruments follow the same strategy, with identical portfolio holdings, churning and rebalancing.

10 years forward:

Particulars	Parth (PMS Investor)	Manan (Mutual Fund Investor)
Initial Investment	₹10 Crore	₹10 Crore
Post-Tax Portfolio Value	₹29.11 Crore	₹29.97 Crore
Post-Tax XIRR (Annualised Return)	9.68%	11.59%
Total Taxes Paid (Over 10 Years)	₹3.71 Crore	₹2.85 Crore

Assuming Investment in identical Equity strategies in PMS and Mutual Fund with a pre-tax return of 12.62% p.a as per AMFI Best Practice Guidelines Circular No. 109-A /2024-25, Dated September 10, 2024. Both strategies are assumed to have an annual churn rate of 50%. There is no tax on rebalancing in the Mutual Fund scheme, whereas it is assumed that 50% of capital gains on rebalancing is taxed at STCG rate and the remaining 50% is taxed at LTCG rate for PMS. The post-tax XIRR and post tax value for both PMS and Mutual Fund has been calculated after deducting the LTCG tax on redemption. Past performance may or may not be sustained in future and is not a guarantee of any future returns.

Despite following an identical investment strategy, Manan, the mutual fund investor, ends up with a higher corpus and lower tax outgo than Parth, the PMS investor, purely because of the structural tax advantage of mutual funds. So while it is perceived that PMS offers direct ownership, it comes at a very high cost.

NJ ELSS Tax Saver Scheme: The Smarter Alternative to PMS

If you're an investor seeking aggressive, high-quality, high-exposure to small and mid cap, and tax-efficient investment, the NJ ELSS Tax Saver Scheme is designed for you.

What Makes It Different?

High Quality Portfolio
Concentrated Portfolio of 25 Stocks
Tilted Towards Mid and Small Cap Stocks
Potential to Outperform Broader Indices
Flavour of PMS
Tax Efficient in Comparison to PMS
Lock-in for Efficient Management

It combines the flavour of PMS with the structural advantage of mutual funds.

The Hidden Power of Lock-In: Discipline in Disguise

For many, the 3-year lock-in of ELSS is seen as a limitation. But when it comes to building long-term wealth, it can be your greatest asset.

Why? Because in investing, behaviour matters as much as markets. Emotional reactions, especially during market downturns, often lead investors to exit prematurely, crystallising temporary losses into permanent ones.

The lock-in period forces investors to stay the course, shielding them from themselves during periods of volatility. In other words, the lock-in doesn't just protect your capital, it protects your decision-making.

Conclusion

In today’s investment landscape, perceptions can be expensive.

Yes, PMS has its place in portfolios. But it’s important to ask: Are you paying for exclusivity or getting real value? With strategies like the NJ ELSS Tax Saver Scheme, investors can experience:

A PMS-like portfolio
Backed by mutual fund-level efficiency
Wrapped in a tax-saving structure

It’s time aggressive investors rethink the traditional hierarchy of investments and consider ELSS not just as a tax-saving tool but as a core wealth creation strategy.

FAQs

1) Do PMS give better returns than mutual funds?

Not necessarily. While PMS is often perceived to deliver higher returns due to its concentrated approach and flexibility, historical data shows that equity mutual funds have performed on par with PMS across most time periods. The key difference lies in the strategy, not the structure.

2) Should I invest in PMS or mutual funds?

Both PMS and mutual funds have their merits, but for many investors, mutual funds like ELSS offer a compelling balance of performance, tax efficiency, and disciplined investing. With lower costs, better liquidity, and the added benefit of Section 80C tax savings, ELSS schemes such as the NJ ELSS Tax Saver Scheme deliver PMS-like strategies with the structural advantages of mutual funds.

3) Is the 3-year lock-in in ELSS a disadvantage?

Not necessarily. The lock-in can protect investors from emotional decisions during market volatility. It encourages long-term discipline, a key driver of wealth creation.

Investors are requested to take advice from their financial/ tax advisor before making an investment decision.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.