Once a family office's legal structure is settled, the next real decision is how the capital inside it actually gets invested. AIF and PMS are the two routes that come up most, and they're not interchangeable.
AIF: pooled, categorised, tax pass-through
An Alternative Investment Fund pools capital from multiple investors into a single vehicle managed by a professional fund manager. SEBI splits AIFs into three categories: Category I (venture capital, SME, infrastructure, and social-venture funds), Category II (private equity, private credit, real estate debt, and fund-of-funds, the most commonly used category), and Category III (hedge-fund-style, leveraged, and derivatives-driven strategies). Categories I and II carry pass-through tax treatment on most income, taxed in the investor's hands rather than the fund's; Category III is generally taxed at the fund level instead, a materially different profile. The minimum investment across all three is ₹1 crore per investor.
PMS: direct, segregated, lower ticket
Portfolio Management Services hold securities directly in the investor's own demat account rather than pooling them with other investors' capital. SEBI's minimum is ₹50 lakh per strategy, a materially lower ticket than an AIF, and the holdings stay individually visible and segregated rather than sitting inside a common fund structure.
Which one fits
Neither is categorically better. An AIF suits a family looking for professional access to private markets, an asset class direct holding usually can't reach on its own, and is comfortable with pooled, less liquid structures. A PMS suits a family that wants a discretionary manager for a listed-securities portfolio while keeping the holdings segregated and visible at all times. Most family offices we've built end up running both at once, one for the liquid, segregated core, the other for private-markets exposure, governed by the same investment policy statement.
The full context, including where direct holding fits alongside both, is on our Investment Strategy page.
This article is general information, not tax or legal advice for your situation. Speak with a qualified adviser before acting.