Srinagar, Sept. 18 -- When you invest through a Portfolio Management Service, you are not buying units of a fund. You are holding individual stocks, bonds, or other securities directly in your own demat account. That one structural fact changes everything about how PMS gets taxed compared to a mutual fund. Every buy and sell the portfolio manager makes on your behalf is a taxable event for you, not for them.

A lot of PMS investors assume that tax treatment depends on what the strategy is called: a "multi-cap strategy," a "value strategy," whatever the marketing brochure says. It doesn't. Taxation depends on what is actually held and for how long. The strategy name tells you nothing about your tax bill. The instrument type and the holding...