For IFAs and Wealth Managers, recommending a real estate-focused investment structure is no longer just about return projections. Structural elements such as liquidity windows, lock-in periods, exit penalties, and NAV visibility now play a decisive role in client suitability and long-term satisfaction.

While pms investment products and Category II AIFs often compete for similar HNI capital, their structural design differs significantly. These differences directly impact client experience, portfolio reporting, and exit planning.

This blog offers a deep structural comparison of pms investment offerings versus Category II AIFs, with a sharp focus on liquidity mechanics, exit frameworks, and valuation transparency—key decision points for professional advisors.

Why Structure Matters More Than Returns in Real Estate Allocations

In real estate investing, capital is inherently illiquid. The way an investment product manages liquidity and exits often matters more than the projected IRR.

For IFAs and Wealth Managers, structural clarity helps in:

• Setting realistic client expectations
  Mismatch between liquidity promises and actual exit timelines is one of the most common sources of client dissatisfaction in pms investment plans.
  
• Aligning product suitability with client goals
  Retirement-focused clients and treasury-driven family offices require very different liquidity profiles.
  
• Ensuring regulatory and reporting comfort
  Clear NAV calculation and benchmark comparison reduce friction during review cycles.
  

Real Estate PMS – Structural Overview

Real estate-focused PMS products combine listed and unlisted exposure, often blending REITs, developer equities, and structured real estate opportunities.

PMS Minimum Investment and Client Suitability

The PMS minimum investment threshold currently stands at ₹50 lakh, making it accessible to a wider HNI base compared to AIFs.

From an advisory standpoint:

• Lower entry threshold improves scalability
  IFAs can onboard a broader client segment without pooling constraints.
  
• Customization flexibility
  Many pms investment plans allow client-level customization, which is attractive for relationship-driven advisory models.
  

Liquidity Windows in PMS Investment Structures

Liquidity is often marketed as a key advantage of pms investment, but the reality is nuanced.

• Open-ended structure with practical constraints
  While technically redeemable, liquidity depends on underlying asset salability, especially for unlisted real estate exposure.
  
• Exit timelines vary by portfolio mix
  Portfolios with higher listed exposure offer faster liquidity than those holding structured real estate deals.
  

Exit Penalties and Lock-in Clauses

Most real estate PMS offerings impose soft lock-ins.

• Exit loads typically range from 1%–3%
  These apply if the client exits within the first 12–24 months.
  
• Impact on short-term reallocations
  For tactical allocators, exit penalties can materially impact net PMS returns India.
  

NAV Calculation Frequency in PMS

NAV transparency is a relative strength of PMS structures.

• Daily or weekly NAV disclosure
  This provides comfort during volatile periods.
  
• Benchmark-linked reporting
  PMS benchmark comparison is typically against indices or custom real estate proxies, aiding review discussions.
  

Category II AIF – Structural Overview

Category II AIFs dominate institutional and semi-institutional real estate allocations.

Capital Commitment and Drawdown Model

Unlike pms investment, AIFs operate on a commitment basis.

• Minimum commitment of ₹1 crore
  This naturally filters for sophisticated capital.
  
• Capital called over time
  This improves IRR efficiency but requires liquidity planning at the investor level.
  

Lock-in Periods and Liquidity Constraints

Liquidity in AIFs is structurally restricted.

• Closed-ended structure
  Capital is locked in for the fund tenure, usually 5–7 years.
  
• Secondary exits are possible but rare
  Transfers require GP consent and often happen at a discount.
  

Exit Structures and Capital Distribution

AIF exits are strategy-driven rather than investor-driven.

• Asset-level exits dictate cash flows
  Investors receive distributions only after asset monetization.
  
• Better alignment with real estate cycles
  This often improves downside protection compared to forced liquidity in pms investment portfolios.
  

NAV Calculation and Valuation Frequency

Valuation in AIFs is less frequent but more conservative.

• Quarterly or semi-annual NAV updates
  These rely on independent valuers.
  
• Reduced mark-to-market noise
  This helps maintain portfolio stability during interim periods.
  

Structural Comparison Table – Real Estate PMS vs Category II AIFs

Below is a practical comparison that IFAs and Wealth Managers can use during product evaluation.

Parameter	Real Estate PMS Investment	Category II AIF
Minimum Capital	PMS minimum investment of ₹50 lakh	₹1 crore commitment
Structure	Open-ended	Closed-ended
Liquidity Window	Periodic, subject to asset mix	No periodic liquidity
Exit Penalty	1%–3% in early years	Not applicable
NAV Frequency	Daily / Weekly	Quarterly / Semi-annual
Exit Control	Investor-initiated	Fund manager-led
Valuation Style	Market-linked	Independent valuation
Suitability	Tactical allocators	Patient capital
Reporting Style	PMS benchmark comparison focused	Asset-level reporting
Strategy Breadth	Flexible PMS strategies	Mandate-driven

PMS Returns India vs AIF Outcomes – Structural Impact

While headline PMS returns India and AIF IRRs may appear similar, structure alters realised outcomes.

How Liquidity Affects PMS Returns

• Forced exits during weak cycles
  Liquidity promises may lead to suboptimal exits.
  
• Higher volatility in reported NAVs
  Frequent valuation can amplify short-term performance swings.
  

How AIF Structure Stabilizes Outcomes

• Exit timing aligned with asset readiness
  This often enhances net outcomes despite illiquidity.
  
• Reduced reinvestment risk
  Capital is not returned prematurely, preserving strategy integrity.
  

Advisory Framework – When to Recommend PMS vs AIF

For IFAs and Wealth Managers, structure should guide recommendations.

PMS Investment Plans Work Best When

• Clients require intermediate liquidity
  
• Portfolio rebalancing is frequent
  
• Transparency and NAV visibility are priorities
  

Category II AIFs Are Better When

• Clients can lock capital for full cycles
  
• Real estate exposure is strategic, not tactical
  
• Return stability is prioritized over flexibility
  

Conclusion – Structure Is the Real Differentiator

For real estate allocations, structure determines experience more than returns.

While pms investment products offer flexibility, visibility, and lower entry barriers, they introduce liquidity-related execution risks. Category II AIFs, on the other hand, sacrifice liquidity in favor of discipline, valuation stability, and cycle-aligned exits.

For IFAs and Wealth Managers, the decision is not about choosing the “better” product, but about matching the right structure to the right client objective. In real estate, structure is strategy.